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Publication(World Bank, Washington, DC, 2012-09) van den Brink, Rogier ; Sayed, Arshad ; Barnett, Steve ; Aninat, Eduardo ; Parrado, Eric ; Hasnain, Zahid ; Khan, TehminaMongolia's mineral-rich economy was hit extremely hard by the global downturn during 2008-9, when copper prices plunged, external demand fell, and growth collapsed. The shock exposed serious underlying weaknesses in the management of the country's natural resource wealth, particularly the lack of policies to insulate the economy from commodity cycles and real exchange rate appreciation pressures, an inadequate safety net, and poor public investment planning. These issues gained further urgency with the signing of a major copper mining deal in 2009 that further increased the country's mineral dependence. As part of its reform efforts and with the assistance of the World Bank and the International Monetary Fund (IMF), the government began an intensive south-south exchange, notably with Chile, another major copper producer, on strengthening the policy environment. The dialogue proved critical in the passage of several landmark laws within the space of a few years, including a fiscal stability law modeled after Chile, and the accompanying integrated budget and procurement and social welfare laws. These reforms will be crucial in managing the boom-bust cycle of mineral prices and mitigating Dutch disease effects by anchoring a prudent countercyclical fiscal policy, strengthening public financial management, increasing savings, and providing a fiscally sustainable social safety net targeted to the poor.
Publication(World Bank, Washington, DC, 2012-02) Chelsky, JeffThe initial post World War II pursuit of capital account liberalization (CAL) by advanced economies was Europe-centric, with roots in a broader political rather than economic agenda of greater European integration. In continental Europe, CAL was addressed mostly through the adoption of multilateral instruments and codes. In contrast, CAL by the United States and United Kingdom was pursued unilaterally, motivated by their status as global reserve currency issuers and global financial centers. China's situation is fundamentally different. China today has no equivalent to the European political motivation for CAL or the domestically driven financial motivation of the United States or the United Kingdom. And while China may have long-term aspirations to be a global reserve currency issuer, the extent to which it internationalizes its currency is constrained by powerful domestic economic and political interests that continue to benefit from an export-led growth model underpinned by a pegged and undervalued exchange rate, both of which are difficult to maintain with an open capital account. Alongside China's overarching concern with the maintenance of financial and economic stability, these factors imply a different path for China than paths taken by advanced economies, with significant acceleration in the gradual pace of liberalization unlikely without accelerated development of domestic constituencies that traditionally support CAL.
Publication(World Bank, Washington, DC, 2010-05) Canuto, Otaviano ; Liu, LiliThis note focuses on the impact of the global financial crisis on subnational debt financing. The report approach the following questions: why is subnational debt financing important? What are the impacts of the crisis on the fiscal balance and financing cost of subnational governments (SNGs)? What explains the variations across countries in the ability of SNGs to proactively address the threat of fiscal deterioration? And, equally important, what are the long-term structural challenges facing SNGs in sustainable financing of infrastructure and social services?