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351. The US Economic Outlook

Author:
Martin Neil Baily and Jacob Funk Kirkegaard
Publication Date:
04-2005
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Oil prices have risen and are expected to remain high. Slow job and wage growth result in slow income growth. Low interest rates kept housing and auto sales strong after 2000 – borrowing future growth. No new stimulus from monetary or fiscal policy. The Iraq war and the terrorism threat may be a drag on confidence. Because 9/11 did not have significant macroeconomic effects, the impact of the war and terrorism seems to be mostly on oil prices No new stimulus from monetary or fiscal policy.
Topic:
Debt, Economics, and International Trade and Finance
Political Geography:
United States and Iraq

352. Fiscal Perspectives in Europe: Convergence and Debt's Burden

Author:
Thierry Warin
Publication Date:
06-2005
Content Type:
Working Paper
Institution:
Minda de Gunzburg Center for European Studies, Harvard University
Abstract:
The paper addresses the question of the fiscal perspectives within the Economic and Monetary Union (EMU). By using a panel data analysis associated with an interpretation in terms of differences instead of levels, the results show a steady convergence of public deficits across the EMU, and that the EMU needs either to comply with the Lisbon agenda, or some kind of a growth strategy, or reduce the interest of the debt in order to regain some fiscal flexibility while abiding by the Stability and Growth Pact (SGP).
Topic:
International Relations, Debt, and Economics
Political Geography:
Europe

353. CATO Institute: Deficits, Interest Rates, and Taxes: Myths and Realities

Author:
Alan Reynolds
Publication Date:
06-2004
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The federal government's swing from budget surpluses to budget deficits has raised concerns about possible negative economic effects. Some economists have argued that deficits will raise interest rates, reduce economic growth, increase trade deficits, and possibly create a financial crisis.
Topic:
Debt, Economics, and Government
Political Geography:
United States

354. A Contract Perspective on the International Finance Facility

Author:
George Mavrotas and Tun Lin
Publication Date:
09-2004
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The present paper is a first attempt to develop a theoretical model using a short-term vis-á-vis long-term contract framework within which donor countries' endorsement or rejection decision towards the recently proposed International Finance Facility (IFF) is rationalized. The current foreign aid system is portrayed as being similar to a series of short-term contracts, where donor countries are able to adjust the aid amount to reflect environmental change (broadly defined to take into account changes in public opinion, domestic situation, etc.). The benefit of this system is in its flexibility. Frontloading aid, on the other hand, as proposed by the IFF proposal, has the benefit of smoothing out the flows over time. In the model presented in this paper, donor countries balance these two contract schemes to determine the endorsement or rejection of the IFF proposal. By using historical aid data covering the period 1990-2003 for all DAC donor countries, our empirical analysis shows the payoffs and relative advantages of these two contract schemes.
Topic:
Debt, Economics, International Political Economy, and International Trade and Finance

355. Privatization in Brcko District: Why It Is Different and Why It Works

Author:
Henry L. Clarke
Publication Date:
01-2004
Content Type:
Working Paper
Institution:
The Wilson Center
Abstract:
The Brcko District of Bosnia and Herzegovina is small, with less than 100,000 people. In 2001, about 30 public companies were selected for privatization. At the outset, there were good reasons to ask whether the District would have any success in privatizing them. Many of the public companies had been shut down for up to ten years, while the rest were operating at a small fraction of their pre-1991 output. There was not a single company that was profitable enough to be sold successfully on the basis of its performance, none had adequate working capital or marketing arrangements, many were deeply in debt, some had too many nonworking “employees” and the equipment of most companies that was not damaged during the war was worn out or obsolete.
Topic:
Debt, Government, Politics, and Privatization
Political Geography:
Europe, Bosnia, and Herzegovina

356. Tough Policies, Incredible Policies

Author:
Alejandro Neut and Andrés Velasco
Publication Date:
09-2004
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
We revisit the question of what determines the credibility of macroeconomic policies here, of promises to repay public debt. The literature has focused on governments. strategic decision to default (or erode the value of outstanding debt via inflation/devaluation). It has also focused on increasing policymakers. utility costs as a way to deter strategic misbehavior. By contrast, we build a model in which default or inflation can occur deliberately (for strategic reasons) or unavoidably (shocks leave no other option). In addition, when it does occur, default or inflation entail pecuniary costs, not just utility costs for the policymaker. In the model with these two features, much conventional wisdom on the determinants of credibility need no longer hold. Tough policies such a as appointing a conservative policymaker, indexing public debt or denominating public debt in foreign currency may reduce, not increase, the credibility of vows to repay debt in full. For some parameter values, these tough policies may also reduce welfare.
Topic:
Debt, Crisis Management, Macroeconomics, Currency, Credibility, and Commitment
Political Geography:
Global Focus

357. Monetary Policy and the Currency Denomination of Debt: A Tale of Two Equilibria

Author:
Roberto Chang and Andrés Velasco
Publication Date:
09-2004
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Exchange rate policies depend on portfolio choices, and portfolio choices depend on anticipated exchange rate policies. This opens the door to multiple equilibria in policy regimes. We construct a model in which agents optimally choose to denominate their assets and liabilities either in domestic or in foreign currency. The monetary authority optimally chooses to float or to fix the currency, after portfolios have been chosen. We identify conditions under which both fixing and floating are equilibrium policies: if agents expect fixing and arrange their portfolios accordingly, the monetary authority validates that expectation; the same happens if agents initially expect floating. We also show that a flexible exchange rate Pareto-dominates a fixed one. It follows that social welfare would rise if the monetary authority could precommit to floating.
Topic:
Debt, Monetary Policy, Exchange Rate Policy, and Currency
Political Geography:
Global Focus

358. Turkish Debt 1990-2002: How Did We Get Here

Author:
Caroline Van Rijckeghem
Publication Date:
12-2004
Content Type:
Special Report
Institution:
Turkish Economic and Social Studies Foundation (TESEV)
Abstract:
In the first year of Turkey’s currency crisis, Turkish public debt increased from what was then a “reasonable” level, to one that was judged to be unsustainable by a wide array of observers. As we went to print in late 2004, public debt, as a percent of national income, had significantly fallen, thanks to fiscal austerity, strong growth, and appreciation of the lira, but it was still above its pre-currency crisis levels, and the debate on public debt lived on. How did Turkish debt increase in the 1990s, and in the immediate aftermath of the crisis? What were the key drivers of this build-up? What lessons were to be drawn from the experience? These are the questions that were being asked regarding the nature of this dramatic experience when the project first took off in early 2003, and are still a matter of great interest now. In fact, debt dynamics was already worrisome before the currency crisis, and had been on a sharp upward trend since the early 1990s. We attempted to resolve whether debt accumulation was due to fiscal profligacy or rather high real interest rates. Interestingly, primary balances of the public sector, other than in the early 1990s, were not very large. This suggested to us two possible reasons for the increase in debt: concealed deficits and high real interest rates. Each of these explanations too, had it’s own camp of adherents. The paper endeavored to decompose, as precisely as possible given the data limitations, the increase in the stock of debt into its most relevant components, namely primary deficits from each public sector component, concealed deficits, valuation effects, and real interest payments. The project took off in late 2002/early 2003, under the leadership of Şerif Sayin, the Director of TESEV. Murat Űçer of Eurosource Turkey guided the project in its initial stages, suggesting, for instance, the study of both the micro and macro aspects of what we named in the paper “debt-generating processes”, and provided feedback throughout. He also edited parts of the paper and contributed to the executive summary. Izak Atiyas of Sabanci University, one of our peer reviewers, made substantial contributions, in particular in the section on duty losses. He, along with Şerif Sayin, and most notably Ferhat Emil, author of the accompanying paper “Kamu Borcu Nasıl Oluştu ? Bu Noktaya Nasıl Gelindi ?” and TESEV program director, helped to interpret the initial results and to incorporate the relevant Turkish institutional aspects into the paper. Hakan Yilmaz, author of the accompanying paper and SPO expert, and Zafer Yukseler of the Central Bank of Turkey, one of our peer reviewers, also provided comments that helped clarify the nature of the Turkish data. We also received feedback from a number of colleagues, academics as well as market economists in a seminar held on the topic. Information for the project was obtained from published official and IMF sources, as well as in a series of meeting with various departments of the Treasury.
Topic:
Debt, Economy, Accountability, and Transparency
Political Geography:
Turkey and Middle East

359. A Short History of the Washington Consensus

Author:
John Williamson
Publication Date:
09-2004
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The term “Washington Consensus” was coined in 1989. The first written usage was in my background paper for a conference that the Institute for International Economics convened in order to examine the extent to which the old ideas of development economics that had governed Latin American economic policy since the 1950s were being swept aside by the set of ideas that had long been accepted as appropriate within the OECD. In order to try and ensure that the background papers for that conference dealt with a common set of issues, I made a list of ten policies that I thought more or less everyone in Washington would agree were needed more or less everywhere in Latin America, and labeled this the “Washington Consensus.” Little did it occur to me that fifteen years later I would be asked to write about the history of a term that had become the center of fierce ideological controversy.
Topic:
International Relations, Debt, Economics, and Politics
Political Geography:
Washington and Latin America

360. The New Approach to Foreign Aid: Is the Enthusiasm Warranted?

Author:
Ian Vásquez
Publication Date:
09-2003
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
The failure of past foreign aid programs has given rise to a new consensus on how to make foreign aid effective. According to the new approach, aid that goes into poor countries that have good policies and institutions is highly effective at promoting growth and reducing poverty. Disbursing aid to countries that have good policies contrasts with the traditional practice of providing aid to countries irrespective of the quality of their policies or providing aid to promote policy reforms. President George Bush's proposed foreign aid initiative, the Millennium Challenge Account, is based on the selective approach to foreign assistance, as are, in large part, the World Bank's calls to double foreign aid flows worldwide.
Topic:
Debt, Economics, International Political Economy, International Trade and Finance, and Third World