Front Matter Page
INTERNATIONAL MONETARY FUND
Review of Recent Crisis Programs
Prepared by the Strategy, Policy and Review Department
In consultation with other departments
Approved by Reza Moghadam
September 14, 2009
Scope. This paper reviews the emerging market programs put in place in response to the current financial crisis. (A forthcoming paper will review the recent experience in low-income countries.) The report covers 15 Stand-By Arrangements (SBAs) approved by the IMF between September 2008 and early July 2009. The programs are concentrated in Europe and the CIS region (Armenia, Belarus, Bosnia & Herzegovina, Georgia, Hungary, Iceland, Latvia, Romania, Serbia, and Ukraine). Other cases covered are Pakistan, Mongolia, and the precautionary (i.e., nondisbursing) SBAs with Costa Rica, El Salvador, and Guatemala. Because the focus here is on the policies pursued under Fund-supported programs, the three countries (Mexico, Poland, and Colombia) that have access to Fund resources under the new Flexible Credit Line (FCL), which does not involve an economic program monitored by the Fund, are not the focus of this paper.
Aim. The goal is to bring a cross-country perspective, examine outcomes, and ask if policies and conditionality are properly tailored to individual country circumstances. While it is too soon to draw firm conclusions (this study does not obviate the need for country-by-country reviews of the type conducted by the Fund in the past), an early assessment is useful in providing real time feedback to country authorities, IMF staff, partner institutions, and policymakers elsewhere.
Approach. Throughout the paper, comparisons are made between the current set of program countries and (i) other current emerging market countries that have not needed Fund support; and (ii) a set of past capital account crisis cases, to see whether program policies and outcomes differ significantly from the general crisis response and from previous Fund involvement (see Figure 4 for methodological notes). Despite the heterogeneity of the program countries involved in this study, the empirical results are generally robust to the choice of countries. In particular, results do not change substantively when omitting the three Central American countries, Mongolia, and Pakistan, which were arguably less affected by the crisis than the Central and Eastern Europe (CEE) and CIS countries. The uncertain nature of 2009 projections, to which the analysis in this paper is anchored, suggests to treat with caution the empirical findings presented here.
Timeline of crisis in advanced and emerging economies
Citation: Policy Papers 2009, 067; 10.5089/9781498335485.007.A000
Sources: CEIC, Markit, and staff calculations.Access levels and growth declines in Fund arrangements
Citation: Policy Papers 2009, 067; 10.5089/9781498335485.007.A000
Sources: WEO and staff calculations.1/ Maximum cumulative decline in three years from program inception; projected changes for current programs.Sectoral vulnerabilities in emerging markets as of September 2007 1/
Citation: Policy Papers 2009, 067; 10.5089/9781498335485.007.A000
Notes:1/ Countries within the circles were identified as having “medium” or “high” underlying vulnerabilities in the respective areas.2/ The September 2007 VEE exercise covered a set of “traditional” emerging market countries, which did not include Armenia, Belarus, Georgia, Iceland, or Mongolia among the current program cases. Of course, vulnerabilities in these countries continued to be monitored as part of regular Fund surveillance. Since October 2008 the Fund’s vulnerability and early warning exercise has been expanded to include some of these cases, as well as the advanced economies.Macroeconomic performance in emerging market countries
(Medians for each category)
Citation: Policy Papers 2009, 067; 10.5089/9781498335485.007.A000
Sources: WEO and staff calculationsMethodological notes for this and subsequent charts and analysis:- “t” refers to 2008 for current program and nonprogram categories, and the inception of the crisis for past cases- Past capital account cases are Mexico (1994), Indonesia (1997), Korea (1997), Philippines (1997), Thailand (1997), Brazil (1998), Ecuador (1998), Russia (1998), Turkey (2000), Argentina (2001), and Uruguay (2001). Dates in parentheses are of crisis inception. Comparisons with past crises should be interpreted with caution, owing to differing external circumstances applying to different episodes.- Current nonprogram cases are those shown in Figure 5; however, for some charts and analysis subsets are used for reasons of data availability.Revisions to 2009 growth projections: IMF staff and consensus
Citation: Policy Papers 2009, 067; 10.5089/9781498335485.007.A000
Source: WEO, Consensus Economics, and staff projections.Data. The analysis is based on data from the Fall 2009 World Economic Outlook. As such, there may be some discrepancies with information contained in recent IMF country reports.
Consultations. The paper benefited from discussions with stakeholders in program countries and elsewhere. Feedback was received from participants to a recent seminar in Brussels and from respondents to an independent opinion survey covering Iceland, Hungary, Romania, and Ukraine.
Staff. The paper was prepared by a team from SPR led by J. Roaf and comprising G. Adler, A. Amranand, B. Barkbu, P. Dohlman, M. Goretti, I. Halikias, B. Joshi, P. Kehayova, F. Salman, Y. Sun, under the supervision of L. Giorgianni, and with contributions from A. Kumar (EXR), M. Horton, A. Ivanova, and E. Sze (FAD), and D. McGettigan, C. Serra, and G. Tolosa (SPR).
Contents
Executive Summary
I. Manifestation of Crisis in Emerging Markets
A. Onset of crisis in Emerging Markets
B. What led countries to request Fund support?
C. Recent developments in program countries
II. Overall Program Design
A. Overall objectives and crisis response
B. Fund financing and burden sharing with other creditors
C. Financing versus adjustment
D. Program conditionality
E. Ownership and review progress
III. Fiscal Policy
A. Fiscal policy in the crisis
B. Fiscal developments leading up to the crisis
C. Overall fiscal stance in program countries
D. Medium-term fiscal adjustment
E. Social spending
IV. Monetary and Exchange Rate Policy
A. Approach and overview
B. Exchange rate policy
C. Monetary policy
V. Financial Sector Policies
A. Incidence of financial sector crisis
B. Policy considerations
C. Policy measures and outcomes
VI. Crisis Recovery and Exit from Fund Support
A. Early signs of stabilization
B. Recovery and risks to external sustainability
C. Exit from Fund support
VII. Conclusions and Issues for Discussion
Appendix I. Current nonconcessional arrangements
Appendix II. Recent cases of direct budget support
Boxes
1. Role of the Fund in Emerging Markets during the crisis
2. Recent experience with the Flexible Credit Line
3. Use of Fund resources for budgetary support
4. Initial conditions and external adjustment
5. Opinion research on the Fund’s role in selected European program countries
6. Measuring fiscal stance
7. Hungary’s fiscal structural reform agenda
8. Maintaining Latvia’s peg
9. Financial sector problems in Iceland, Latvia, and Ukraine
10. Bank Coordination Initiative (BCI) in CEE countries
11. Financial sector measures in program countries
12. Household and corporate debt restructuring
