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691. Country Economic Forecasts: Brazil

Publication Date:
12-2008
Content Type:
Policy Brief
Institution:
Oxford Economics
Abstract:
In sharp contrast to many emergers, Brazil was still growing very robustly in Q3. But the intensification of the global crisis, and its numerous repercussions – many of which were unforeseen – since September has been so great that it has stopped the economy in its tracks. The clearest sign of this is that annual import growth, which had been growing at close to 60% mid-year, dropped to only 9.2% in November. This is an indication of the extent to which previously soaring domestic demand growth, particularly investment, has slowed. Export volumes were already weakening in Q3 and the major deterioration in the global background since then is expected to lead to exports falling by nearly 3% in 2009 as a whole. This, together with the much lower commodity prices than firms will have budgeted for and the global fall in business confidence, will cause investment to shrink in 2009 after 15% growth in 2008. Consumer spending growth is also forecast to slow significantly but should at least stay positive, helped by an expected moderation in inflation. Meanwhile, given its healthy fiscal position, the government is likely to step up its spending. Overall, GDP growth is now forecast to slow to 1.3% in 2009. Although scope for the central bank to cut interest rates remains constrained by the weak BRL and 6%+ inflation, the rapid pace of the slowdown in both Brazil and the rest of the world may lead to a substantial reduction in underlying inflation pressures. This could pave the way for interest rate cuts to start in early-2009.
Topic:
Economics, Markets, and Financial Crisis
Political Geography:
Latin America

692. PolicyWatch #1396: Financial Crisis Grips Fayad Government

Author:
Mohammad Yaghi
Publication Date:
08-2008
Content Type:
Policy Brief
Institution:
The Washington Institute for Near East Policy
Abstract:
Palestinian prime minister Salam Fayad recently appealed to the World Bank in an effort to bridge the current budget gap preventing the Palestinian Authority (PA) from paying government salaries this month. Despite a three-year $7.5 billion assistance pledge from the 2007 Paris donor conference, the PA remains in a financial crisis, with a projected shortfall of $400 million for the second half of 2008, as reported by the Ad Hoc Liaison Committee in May. Since Fayad's technocratic government has no independent political base, its legitimacy stems from the PA's financial solvency. He has survived ongoing attacks from rival Fatah leaders only because Palestinian president Mahmoud Abbas recognizes him as the linchpin to Western donor assistance. If the financial crisis persists, however, Fayad's political future is in doubt.
Topic:
Government, International Political Economy, Financial Crisis, and World Bank
Political Geography:
Middle East and Palestine

693. Freddie Mac and Fannie Mae: An Exit Strategy for the Taxpayer

Author:
Arnold Kling
Publication Date:
09-2008
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
The Fannie Mae-Freddie Mac crisis may have been the most avoidable financial crisis in history. Economists have long complained that the risks posed by the government-sponsored enterprises were large relative to any social benefits.
Topic:
Economics, Government, and Financial Crisis
Political Geography:
United States

694. 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

695. 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

696. 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

697. Fostering Economic Growth through a "European" Debt

Author:
Maria Teresa Salvemini
Publication Date:
09-2007
Content Type:
Journal Article
Journal:
The International Spectator
Institution:
Istituto Affari Internazionali
Abstract:
There is a general consensus that the long period of stagnation that has afflicted the European economy is a symptom of more profound structural problems that cannot be solved with expansionary macroeconomic demand policies, much less left up to market forces or financial rigour. The most important problem is the low productivity of European economies, which has now been recorded for many years. This low productivity can be explained in a number of ways, including inadequate public investment in both physical and human capital. Although the link between public investment and productivity and efficiency in the private sector is indirect, and therefore cannot always be precisely quantified, there can be no doubt that the effect of market failures are being felt in numerous sectors of the economy: advanced and applied research, training in information technologies, environmentally compatible infrastructure, low-yield and capital-intensive investments, to mention just a few. Thus, there is room for new development policies based on building the public capital – material and immaterial – which is needed to stimulate that growth of productivity in the private sector that economic theory and historical experience have found to be important.
Topic:
Financial Crisis
Political Geography:
Europe

698. Financial Crisis and Fiscal Policies in Globalization: A Latin America Experience

Author:
Ayça Şimşek
Publication Date:
03-2007
Content Type:
Journal Article
Journal:
Bilgi
Institution:
Sakarya University (SAU)
Abstract:
Dünya ekonomisinde küreselleşme süreci ile birlikte hızla artan dışa açılma eğilimleri özellikle gelişmekte olan ülkelerin finansal piyasalarında önemli değişimlere yol açmıştır. Bu ülkelerde erken dışa açılma (finansal piyasaların gelişimini tamamlamadan dışsal aktörlere açılması) ve sığ piyasaların varlığı piyasaların dışsal şoklardan etkilenme derecesini arttırarak krizlerin oluşumunu tetiklemiştir. Latin Amerika ülkeleri bu özellikleri bünyesinde barındıran ve dolayısıyla krizlerden önemli ölçüde etkilenen ülkeler olmuşlardır. Bu ülkelerin finansal piyasalarında 1960'lı yıllardan itibaren küreselleşmenin hız kazanmasıyla birlikte krizler ortaya çıkmaya başlamıştır. Bu krizler ile mücadelede özellikle IMF tarafından önerilen ortodoks ekonomi politikaları uygulanmış ve bu çerçevede sıkı para ve maliye politikası önlemleri ile finansal krizlerin piyasalar üzerindeki etkileri azaltılmaya çalışılmıştır. Ancak bu politikalar; uygulama sonuçları itibariyle kısa dönemde finansal piyasalarda kısmi bir iyileşme sağlamışsa da uzun dönemde ekonomide daraltıcı etkilere yol açarak reel ekonomideki durgunluk sürecini körüklemiştir. Dolayısıyla bu piyasalarda krizlerle mücadelede uygulanan para ve maliye politikalarının eşanlı yürütülmesi ve bu bağlamda makroekonomik politikaların birbiriyle tutarlılığı önem taşımaktadır. Bu açıdan Latin Amerika ülkelerinde reel piyasaları daraltmadan finansal risklerin azaltılmasını sağlayacak güvenilir ve istikrarlı bir ekonomi politikasının uygulanabilirliğinin sağlanması, sadece finansal istikrarın değil tüm makroekonomik istikrarın gerçekleştirilmesi için gerekli görülmektedir.
Topic:
Financial Crisis
Political Geography:
Latin America

699. 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

700. 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