10th December 2001
What organizational reforms might increase the influence of developing member countries within the International Monetary Fund? In this paper we argue that a variety of organizational changes are both feasible and could substantially increase the ability of developing countries to articulate policy alternatives and advance change. We focus particularly on changes in the recruitment, training, career paths and deployment of the Fund’s staff. Our recommendations address two general issues. First, we explore ways to diversify the “intellectual portfolio” of the staff by drawing more effectively on hands-on knowledge of the concrete circumstances that shape policy outcomes in the South. More mid-career hiring of staff with practical experience inside developing country institutions could increase the degree to which the distinctive institutional circumstances of developing members are taken into account in formulating Fund policies and implementing them. Allocating a larger share of the Fund’s resources to research consulting contracts for researchers and institutions based in developing countries could also expand input of ideas that reflect the experience of member countries from the South. Second, large asymmetries in workload currently make it difficult for those working on the needs of developing members to formulate and advocate alternative policies. We suggest a number of ways in which even modest reallocation and addition of staff resources might create breathing space that would allow Executive Directors from developing countries to play a larger role in shaping the Fund’s policies.
10th September 2001
Financial crises now seem circumscribed to developing countries. While contagion used to spread crises among the large financial centres, it now affects developing countries on a regional basis, sometimes even mysteriously on a worldwide basis. While crises could unmistakably be linked to serious macroeconomic policy mismanagement, now they hit countries with no serious imbalances. This paper looks at the effect of domestic and external financial liberalization. Using a sample of 27 developing and developed countries, it studies the exchange market pressure and output gap effects of liberalization. The results may be summarized as follows.
10th July 2001
This paper argues that the agenda for international financial reform must be broadened in at least two senses. First of all, it should go beyond the issues of financial prevention and resolution to those associated with development finance for poor and small countries, and to the “ownership” of economic and development policies by countries. Secondly, it should consider, in a systematic fashion, not only the role of world institutions but also of regional arrangements and the explicit definition of areas where national autonomy should be maintained. These issues should be tabled in a representative, balanced negotiation process.
10th July 2001
When East Asian countries came under speculative attacks in 1997, some of them were not able to defend themselves, and subsequently had to seek the financial assistance of IMF and accept its stabilization programmes. These crisis-hit countries were criticized for not having restructured their financial, corporate, and public sectors along the lines suggested by the Washington consensus. This failure was singled out as the main cause of the crisis and, understandably, these crisis-hit countries were subject to heavy doses of structural reforms. The East Asian crisis became contagious, even threatening the stability of major international financial centres. The severity and contagiousness of the East Asian crisis underscored the importance of, and renewed interest in, reforming the international financial system. Numerous proposals have been put forward. The G-7-led reform, however, has concentrated its efforts on reforming the financial and corporate sectors of developing economies, while by and large ignoring the problems of the supply side of international finance.
10th April 2001
This paper looks at the role of the International Monetary Fund (IMF) in the evolving global financial system from the perspective of developing country interests. It finds that on certain issues, such as the scope and purposes of its lending operations, a consensus has been reached that IMF should continue to serve all its members, including the poorest, and that its resources should be available for supporting macro-relevant structural reforms as well as for dealing with financial crises.
On a number of other issues, there remain differences between industrial and developing country views, including on the extension of IMF surveillance to cover the observance of international standards and codes. Largely unsettled are the modalities of the involvement of the private sector in crisis resolution, with special reference to the development of arrangements in the international sphere that would be analogous to domestic bankruptcy procedures, including the declaration of standstills and principles for orderly and equitable debt workouts. The liberalization of the capital account and the choice of exchange regimes are two interconnected areas in which international prescriptions conflict with developing country insistence on the preservation of national autonomy and in favour of intermediate regimes, as opposed to corner solutions. The scope and content of IMF conditionality raises the issue of how to reconcile it with the importance of assuring country ownership.
10th March 2001
This paper focuses on the prospects for sustained development in the four East Asian economies most adversely affected by the crises of 1997/98. These include all three second-tier South-East Asian newly industrializing countries (NICs) – Indonesia, Malaysia and Thailand – as well as the Republic of Korea, the most adversely affected of the first-generation newly industrialized economies (NIEs). The first section critically examines the East Asian model presented by the World Bank’s “East Asian Miracle” (1993). The study emphasizes the variety of East Asian experiences. The three second-tier South-East Asian experiences are shown to be quite distinct from, and inferior to, those of the first-generation NIEs, especially the Republic of Korea and Taiwan Province of China.
10th February 2001
For small open economies, efficient taxation of foreign and domestic capital depends on
their relative mobility. If foreign and domestic capital are equally mobile internationally, it will
be optimal for countries to subject both types of capital to equal tax treatment. If foreign capital
is more mobile internationally, it will be optimal to have lower taxes on capital owned by foreign
residents than on capital owned by domestic residents. Absent market failure, there is no
justification for favouring FDI over foreign portfolio investment. In practice, countries appear
to tax income from foreign capital at rates lower than those for domestic capital and to subject
different forms of foreign investment to very different tax treatment. FDI appears to be sensitive
to host-country characteristics. Higher taxes deter foreign investment, while a more educated
work force and larger goods markets attract FDI. There is also some evidence that multinationals
tend to agglomerate in a manner consistent with location-specific externalities.
10th January 2001
Recent studies have shown that exchange rates in developing countries have limited flexibility. In this paper we review the existing explanations for this stylized fact, using a simple framework of monetary policy in a world where firms face balance sheet effects and the economy has a high pass-through from depreciation to inflation. We estimate a panel regression using quarterly data in the period 1990–1999 for a sample of 46 countries (19 industrial and 27 developing), and find that the use of the exchange rate to buffer external shocks depends crucially on (i) on the degree of integration with capital markets, and (ii) the quality of external financing. We conclude that flexible regimes are viable in financially open economies, provided external financing is not based on very volatile capital. This, of course, is dependent on the establishment of credible macroeconomic policies.
10th December 2000
This Report consists principally of recommendations and guidelines. It acknowledges the threat to the benefits of a liberal global regime for international capital flows posed by their instability. Concern is expressed as to risks to stability linked to reliance on short-term borrowing from banks, the interaction between different financial risks, and faultlines in global financial markets resulting from firms’ own hedging and risk management that may be difficult to identify in advance. But, in general, the Report’s recommendations focus mainly on changes in recipient countries in practices with regard to the monitoring and management of financial risks, rather than on changes in the main sources of international lending and investment. Those directed at the latter would require no major deviations from the thrust of existing policies in the countries concerned. In particular, the Report does not discuss proposals put forward in some quarters for substantial improvements in transparency regarding operations in currency markets widely considered to have contributed to recent episodes of instability. On the subject of controls over capital movements, the Report limits itself to cautious endorsement of those over inflows