This paper proposes the implementation of a fiscal insurance mechanism for the member countries of the Organization of Eastern Caribbean States (OECS). Fiscal insurance would be important to cushion against transitory shocks and would also reinforce the union’s long-term viability. These countries are already linked together through a common currency, administered by the Eastern Caribbean Central Bank (ECCB) under a currency board arrangement. Preliminary evidence suggests that volatility in fiscal accounts would be reduced if countries join a fiscal insurance arrangement through the possibility of cross-compensations under a risk-sharing scheme. Moreover, since the regional fluctuations of output and government revenues are not significantly correlated, a fiscal insurance mechanism can take advantage of these asymmetries and lead to welfare gains for all members. The paper presents numerical simulations for partial and full insurance schemes and quantifies the required size of the initial buffer. It also simulates what would be the welfare gains in terms of lower volatility and lower initial buffer as compared to self-insurance.

Official donors and private investors, focused increasingly on the role of institutions and policy quality in development, seek to monitor them more closely. This paper examines the World Bank’s Country Policy and Institutional Assessments, the World Economic Forum’s Global Competitiveness Indices, and a set of governance indicators also developed at the World Bank. The paper calls for appreciating the weaknesses of such indicators, especially their low ability to discriminate among countries or over time. More robust elements in such indicators, however, may usefully complement structured narrative analyses of countries and stimulate public discourse on institutional and policy development.

The paper reviews aspects of the financial governance of the IMF, focusing on the equity implications of the manner of distributing the cost of running the Fund’s regular (nonconcessionary) lending operations as well as the modalities of funding its concessionary lending and debt relief operations. It is concluded that while the Fund charges borrowers roughly what it pays its creditor members for the resources used in its regular lending operations, its overhead costs (administrative budget plus addition to Reserves) are shared between the two groups of members in a less equitable manner. With the overhead costs rising inexorably to meet an increasing number and variety of responsibilities being placed upon the institution, largely at the instance of the Fund’s principal creditors, by virtue of their dominant majority of voting power, the under-representation of the Fund’s debtors undermines the legitimacy of its decision-making. In regard to the concessionary lending and debt relief operations, some of the funding modalities have involved a substantial contribution by Fund debtors, sometimes under pressure. While this outcome has been accepted as part of an intra-developing country burden-sharing exercise, it has also meant a significant burden-shifting away from the developed countries in the cost of meeting their responsibilities to the poorest members of the international community.

This study challenges the conventional story of an U.S. economy experiencing the longest expansion and shortest recession in the post-war period, now advancing through a slow, sturdy recovery. It characterizes the present state of the world economy as a growthrecession and draws plausible scenarios for the U.S. economy and their implications for the rest of the world.

The thread of the argument emerges from an appraisal of the unique configuration of demand and accumulation of debt by the main sectors of the U.S. economy. This analysis stresses that rather than a virtuous expansion during the 1990s, the entire model was based on unsustainable driving forces. After 2000Q2 economic growth fell progressively below potential, failing to generate sufficient employment. Prospects of a US-led worldwide recovery are inconsistent with the unprecedented and unsustainable debt exposure of main sectors of the US economy.

Should this appraisal prove prescient, a further pursuit of free market globalization would be deemed counter-productive. The central case we put forward as antidote to the risk of such a global impasse would be the reinstatement of the appropriateness of fiscal policy in tandem with properly regulated credit and external sectors, co-ordinated worldwide.