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322. The Global Financial Crisis: Effects on Bolivia
- Author:
- Luis Carlos Jemio and Osvaldo Nina
- Publication Date:
- 05-2009
- Content Type:
- Working Paper
- Institution:
- Institute for Advanced Development Studies (INESAD)
- Abstract:
- The global financial crisis is expected to have a negative impact on the Bolivian economy. Effects will transmit into the economy through lower export prices and quantities, reduced amount of remittances and depressed foreign direct investment (FDI) flows. These shocks will bring about deficits in the current account and fiscal balances, foreign exchange reserves losses, sluggish economic growth and higher unemployment rates. The latest data available show that the economy is already experiencing the effects of the economic downturn, in the form of decreased exports revenues, sharp reductions in the rates of growth of foreign of exchange reserves and bank lending and a tendency towards a redollarisation of financial assets and liabilities. The Bolivian economy, however, is better prepared, at least in the short run, to cope with the negative effects of the crisis. The commodity export boom experienced between 2005 and 2008 has permitted the country to run sizable external and fiscal surpluses and accumulate foreign exchange reserves. The financial system has exhibited more prudent behaviour in recent years, by not expanding credit too much and increasing investments in highly liquid public bonds. Therefore, although banks are expected to be affected by the global financial crisis, they have high liquidity ratios and are not extremely exposed to risk. The capacity of the Bolivian economy to offset the negative effects of the global crisis will depend on several factors, such as the severity and duration of the crisis and, above all, the quality of the policies that policymakers will implement to cope with the crisis. The government faces several trade-offs in implementing policies in order to cope with the effects of the crisis. The central bank, for instance, is committed to maintaining a fixed exchange rate, in order to reduce inflationary pressures and to avoid a re-dollarisation of the financial system. However, a fixed exchange rate policy has already brought about an exchange rate appreciation, which is hurting competitiveness of tradable activities. Furthermore, the government has room to implement countercyclical fiscal policies, by resorting to the deposits accumulated in the central bank during the export boom years. During 2009, the government is planning to expand public investment and to increase direct transfers to the population. However, these policies are not likely to offset the negative effects that the crisis will have on growth and employment. More efforts should be made to improve the quality of public spending, in order to maximise its impact on economic growth, employment creation and poverty reduction.
- Topic:
- Development, Financial Crisis, Economy, and Exports
- Political Geography:
- South America and Bolivia
323. The Politics of Credit Rating Agencies in the European Union
- Author:
- Lucia Quaglia
- Publication Date:
- 06-2009
- Content Type:
- Working Paper
- Institution:
- Centre for Global Political Economy, University of Sussex
- Abstract:
- Why did the European Union (EU) decide to regulate Credit Rating Agencies (CRAs), instead of relying on the revised rules agreed at the international level and the revised US law to which the main CRAs operating in the EU but headquartered in the US were subject to? This research addresses this key question concerning the multi-level governance of financial services using a 'soft' rational choice institutionalist framework. It is argued that the global financial crisis, acting as an exogenous shock, triggered three causal mechanisms that led to a new institutional equilibrium within and without the EU, namely the issuing of EU rules on CRAs.
- Topic:
- Political Economy, Financial Crisis, European Union, Finance, and Credit
- Political Geography:
- Europe
324. Foreign Exposure to Asset-Backed Securities of U.S. Origin
- Author:
- Daniel O. Beltran, Laurie Pounder, and Charles Thomas
- Publication Date:
- 08-2008
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- The financial turmoil which began in August 2007 originated, in part, because investors reassessed the quality of the assets underlying many asset-backed securities (ABS), particularly U.S. mortgages. The prominence of European banks in the early stages of the turmoil created the perception that foreigners held an outsized share of risky U.S. securities and prompted questions of why Europeans were so exposed. This paper evaluates that perception by quantifying foreign exposure to ABS with U.S. underlying collateral. Using the latest survey data on foreign portfolio holdings of U.S. securities, we find that the ultimate losses that foreigners could incur arising from U.S. underlying assets are small relative to most scale variables, although initial total mark-to-market losses are estimated to be significantly larger. Among other reasons for this difference between ultimate and initial losses, we demonstrate that the securitization chain can amplify mark-to-market price declines in the presence of uncertainty or illiquidity. Finally, we show that, relative to the size of the market, foreigners’ holdings of U.S. mortgage-backed securities do not appear to be elevated compared with their holdings of other U.S. assets.
- Topic:
- Economics, Financial Crisis, Financial Markets, and Mortgages
- Political Geography:
- United States and North America
325. The Asian Financial Crisis, Uphill Flow of Capital, and Global Imbalances: Evidence from A Micro Study
- Author:
- Brahima Coulibaly and Jonathan Millar
- Publication Date:
- 08-2008
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- This study assesses the role of the Asian Önancial crisis of the late 1990s in the emergence and persistence of the large current account surpluses across non-China emerging Asia, which have been a signiÖcant counterpart to the U.S. current account deÖcit. Using panel data encompassing nearly 3,750 Örms, we trace the current account surpluses to a marked and broad-based decline in corporate expenditures on Öxed investment in the aftermath of the crisis that cuts across a wide spectrum of countries, industries, and Örms. The lower corporate spending in turn depressed aggregate investment rates, widened the saving-investment gap, and allowed the region to turn into a net exporter of capital. We then consider the factors behind this reduction in postcrisis corporate investment. While weaker Örm-level fundamentals in the postcrisis period seem to explain part of the drop in investment rates, ongoing re-structuring owing to large debts accumulated and excess investment undertaken in the run-up to the crisis has been the main source of restraint postcrisis corporate investment. The results suggest that even after a decade, the e§ect of the Önancial crisis is still a§ecting corporate investment decisions in emerging Asia, and that as the restructuring completes its course, investment rates will likely rise to contribute to a gradual reduction in the regionís current account surpluses.
- Topic:
- Emerging Markets, Financial Crisis, Economic Inequality, and Investment
- Political Geography:
- Asia
326. Earning from History: Financial Markets and the Approach of World Wars
- Author:
- Niall Ferguson
- Publication Date:
- 02-2008
- Content Type:
- Working Paper
- Institution:
- Weatherhead Center for International Affairs, Harvard University
- Abstract:
- We are living through a paradox-or so it seems. Since September 11, 2001, according to a number of neo-conservative commentators, America has been fighting World War III (or IV, if you like to give the Cold War a number). For more than six years, these commentators have repeatedly drawn parallels between the "War on Terror" that is said to have begun in September 2001 and World War II. Immediately after 9/11, Al Qaeda and other radical Islamist groups were branded "Islamofascists". Their attack on the World Trade Center was said to be our generation's Pearl Harbor. In addition to coveting weapons of mass destruction and covertly sponsoring terrorism, Saddam Hussein was denounced as an Arab Hitler. The fall of Baghdad was supposed to be like the liberation of Paris. Anyone who opposed the policy of pre-emption was an appeaser. And so on.
- Topic:
- Cold War, Economics, Terrorism, War, and Financial Crisis
- Political Geography:
- America and Iran
327. Can Exchange Rates Forecast Commodity Prices?
- Author:
- Kenneth Rogoff, Yu-chin Chen, and Barbara Rossi
- Publication Date:
- 02-2008
- Content Type:
- Working Paper
- Institution:
- Weatherhead Center for International Affairs, Harvard University
- Abstract:
- This paper studies the dynamic relationship between exchange rate fluctuations and world commodity price movements. Taking into account parameter instability, we demonstrate surprisingly robust evidence that exchange rates predict world commodity price movements, both in-sample and out-of-sample. Our results are consistent with a present value relationship in which the exchange rate depends on a present value of fundamentals including, for a core group of commodity exporters, the world price of their commodity exports. Because global commodity prices are essentially exogenous to these countries, we are able to avoid the endogeneity pitfalls that plague most of the related exchange rate literature. More directly, the analysis suggests that where commodity price forward markets are thin or non-existent, exchange rate-based forecasts may be a viable alternative for predicting future price movements.
- Topic:
- Economics, Markets, and Financial Crisis
- Political Geography:
- Australia and New Zealand
328. Investment Cycles and Sovereign Debt Overhang
- Author:
- Mark Aguiar, Manuel Amador, and Gita Gopinath
- Publication Date:
- 02-2008
- Content Type:
- Working Paper
- Institution:
- Weatherhead Center for International Affairs, Harvard University
- Abstract:
- We characterize optimal taxation of foreign capital and optimal sovereign debt policy in a small open economy where the government cannot commit to policy, seeks to insure a risk averse domestic constituency, and is more impatient than the market. Optimal policy generates long-run cycles in both sovereign debt and foreign direct investment in an environment in which the first best capital stock is a constant. The expected tax on capital endogenously varies with the state of the economy and investment is distorted by more in recessions than in booms amplifying the effect of shocks. The government's lack of commitment induces a negative correlation between investment and the stock of government debt, a "debt overhang" effect. Debt relief is never Pareto improving and cannot affect the long-run level of investment. Further, restricting the government to a balanced budget can eliminate the cyclical distortion of investment.
- Topic:
- Debt, Economics, Markets, and Financial Crisis
329. New York City's Preparedness for Terrorism (and Catastrophic Natural Disasters)
- Author:
- Clark Kent Ervin
- Publication Date:
- 10-2008
- Content Type:
- Working Paper
- Institution:
- Aspen Institute
- Abstract:
- Sooner or later, somewhere or other, another natural disaster will strike America, be it a hurricane, a tornado, an earthquake, or a flood. Sooner or later, somewhere or other, terrorists will attempt to strike America again. Indeed, many experts believe that the threat of another attack is rising. 1 Al Qaeda is resurgent, having reconstituted itself along the Afghan-Pakistan border. 2 And, recent history shows that terrorists are especially prone to strike during the transition from one administration to another or early in the term of a new government. Adding to our vulnerability, the nation is now bogged down in two wars and groaning under mounting debt, while our economy is sinking from the greatest financial crisis since the Great Depression.
- Topic:
- Security, Natural Disasters, Financial Crisis, and Al Qaeda
- Political Geography:
- Pakistan, Afghanistan, and United States of America
330. How Regulatory Reforms in Sweden have boosted Productivity
- Author:
- Espen Erlandsen and Jens Lundsgaard
- Publication Date:
- 09-2007
- Content Type:
- Working Paper
- Institution:
- The Organisation for Economic Co-operation and Development
- Abstract:
- The economic crisis in the early 1990s prompted action on reforming the Swedish welfare state and its institutions, including deregulation of a wide range of product markets. In that way, Sweden took early action compared to other OECD countries currently struggling with how to make public finances more robust in an ageing context. The reforms that were implemented during the 1990s are now paying off in terms of productivity and GDP growth. Empirical evidence suggests that deregulation has delivered a considerable “productivity dividend”. Although significant progress therefore has been made, renewed regulatory reform is needed to safeguard Sweden’s ambitious public policy goals. Efforts should focus on improving enterprise formation and labour utilisation, as well as on providing better value for money in the public sector by raising its efficiency and delivering high quality services.
- Topic:
- Financial Crisis, Reform, Regulation, and Public Policy
- Political Geography:
- Europe, Sweden, and Scandinavia
331. Stormy Days on an Open Field: Asymmetries in the Global Economy
- Author:
- Nancy Birdsall
- Publication Date:
- 02-2006
- Content Type:
- Working Paper
- Institution:
- Center for Global Development
- Abstract:
- Openness is not necessarily good for the poor. Reducing trade protection has not brought growth to today's poorest countries, and open capital markets have not been good for the poorest households in emerging market economies. In this paper I present evidence on these two points. First, countries highly dependent on primary exports two decades ago, despite their substantial engagement in trade and a marked decline in their tariff rates in the 1990s, have failed to grow. Second, within high-debt emerging market economies the financial crises of the last decade, whether induced by domestic policy problems or global contagion, have been especially costly for the poor (in welfare terms if not in terms of absolute income losses). I discuss the asymmetries in the global economy that help explain why countries and people cannot always compete on equal terms on the “level playing field” of the global economy.
- Topic:
- Economics, Globalization, International Trade and Finance, Poverty, and Financial Crisis
332. The Impact of the Crisis - Decline and Recovery
- Author:
- Joseph J. Stern
- Publication Date:
- 01-2004
- Content Type:
- Working Paper
- Institution:
- The John F. Kennedy School of Government at Harvard University
- Abstract:
- When the Asian financial crisis broke in mid-1997, the expectation was that Indonesia would weather the crisis with minimal damage. Actual events soon proved these expectations widely wrong and the Indonesian economy was more severely affected than other Asian countries. In part this outcome reflected Indonesia's fundamental institutional weakness that had been overlooked in the euphoria that marked international financial markets during the 1990s, and in part the impact of the financial crisis was magnified by inconsistent internal policies and by an overly ambitious IMF program that tried to achieve too much in to short a period of time. The result was not only a severe economic contraction with rising poverty levels and growing social unrest, but a political change that resulted, in the short-run, in further economic instability and effectively delayed Indonesia's recovery.
- Topic:
- Politics, Financial Crisis, Banks, Currency, IMF, and Economic Recovery
- Political Geography:
- Indonesia, Asia, and Southeast Asia
333. The Rise and Fall of the Indonesian Economy
- Author:
- Joseph J. Stern
- Publication Date:
- 06-2003
- Content Type:
- Working Paper
- Institution:
- The John F. Kennedy School of Government at Harvard University
- Abstract:
- The Indonesia crisis was particularly severe. What began as an economic crisis quickly evolved in to a political crisis. Most analysts failed to recognize the growing weaknesses of the economy and were caught by surprise. In part Indonesia's economic success over the period 1985 through 1997 and its records on policy reforms had persuaded many that, despite some obvious weaknesses, it would come through the Asian crisis with minimum damage. A closer analysis of the Indonesia's economic history shows that the initial reforms, carefully crafted by a highly respected group of economic technocrats, tackled many of the most serious distortions that held back economic growth. But as these reforms began to pay off in terms of higher growth rates, sharply declining poverty rates, and an increased level of integration in the global economy, the desire for further reforms waned. Over time the beneficiaries of the early reforms allied themselves with the political elites to block further reforms and in effect reduced the power of the technocrats to resist a return to the dirigiste tendencies that had marked much of Indonesia's early development efforts. While the reforms were important, in retrospect they were insufficient to create an institutional infrastructure that could weather a dramatic economic downturn.
- Topic:
- Corruption, Economics, Poverty, Financial Crisis, Reform, and Economic Policy
- Political Geography:
- Indonesia and Southeast Asia
334. Targeted Programs in an Economic Crisis: Empirical Findings from Indonesia’s Experience
- Author:
- Lant Pritchett, Sudarno Sumarto, and Asep Suryahadia
- Publication Date:
- 09-2002
- Content Type:
- Working Paper
- Institution:
- The John F. Kennedy School of Government at Harvard University
- Abstract:
- In response to the economic, natural, and political crisis that enveloped Indonesia from August 1997 (beginning of depreciation) to May 1998 (resignation of Soeharto), the new government announced support for a set of “safety net” (JPS) programs in July 1998 budget. These included: (a) targeted sales of subsidized rice, (b) work creation programs, (c) scholarships to students and block grants to schools, (d) targeted health care subsidies, (e) community block grants. We used cross sectional and panel data to examine the targeting of these programs. First, "static participation incidence" (the relationship between program participation and household consumption expenditures) was substantially better than a uniform transfer, but substantially worse than perfect targeting --and remarkably similar for all of the JPS programs. Second, unlike standard static incidence measures, what we define as dynamic participation incidence — the relationship between changes in consumption expenditures and program participation — was very different between the JPS programs. The employment creation programs which relied on self-selection targeting was much more likely to reach those households with large shocks to their expenditures than programs based on administrative targeting such as subsidized rice sales, scholarships, and health subsidies. Third, larger coverage does not lead to either better or worse targeting: there is no general tendency across the programs for marginal incidence to be above, or below, average incidence. Fourth, the targeting design of many of the programs was not followed strictly in implementation in all of the programs. Community and individual characteristics that were de jure irrelevant played a role in targeting in practice. In the rice program, community influence led to the program going to many more than the eligible individuals. In other programs, individual characteristics appear to have influenced targeting.
- Topic:
- Economics, Financial Crisis, and Subsidies
- Political Geography:
- Indonesia and Southeast Asia
335. Replacing Potemkin Capitalism: Russia's Need for a Free-Market Financial System
- Author:
- Kurt Schuler and George A. Selgin
- Publication Date:
- 06-1999
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- On August 17, 1998, Russia devalued the ruble and stopped payment on its government debt, creating a financial crisis that continues today. Some observers have blamed the financial crisis, and the poor performance of the Russian economy generally, on government policies that they claim are rigidly laissez faire. However, a closer look at the Russian financial system reveals that it remains fundamentally socialist, though it has superficial capitalist features.
- Topic:
- Debt, Economics, Government, and Financial Crisis
- Political Geography:
- Russia, Europe, and Asia