Items in this collection
PublicationThe Global Financial Crisis : Comparisons with the Great Depression and Scenarios for Recovery(World Bank, Washington, DC, 2009-08) Brahmbhatt, Milan; Da Silva, Luiz PereiraA recent paper has highlighted some close correspondences between economic performance during the present world recession and that during the early months of the great depression that began in late 1929. World industrial production from April 2008 to April 2009 fell as rapidly as during the first year of the great depression, while stock market prices and world trade volumes have fallen more rapidly than in the comparable period. These comparisons lead Eichengreen and O'Rourke to draw the alarming conclusion that 'it's a depression alright.' They note, however, that fiscal and monetary policies are likely to be much more supportive of economic activity in the next 1-2 years than they were during the first few years of the great depression. The first part of this note outlines some other important structural differences between the world economy today and in the 1930s that are likely to affect how the present recession plays out relative to the great depression. The second part of the note discusses possible recovery paths out of the current crisis. PublicationA Note on Vulnerability : Findings from Moving Out of Poverty(World Bank, Washington, DC, 2009-04) Dudwick, Nora; Hull, Katy; Tas, EmcetPoverty studies typically focus on people who live below the poverty line. Few studies have examined how people are able to not only move out of but also stay out of poverty. The fifteen, country study, moving out of poverty: success from the bottom up, by Deepa Narayan, Lant Pritchett, and Soumya Kapoor, is one of the few large-scale comparative research attempts to analyze mobility out of poverty rather than poverty alone. The study focused largely on rural communities over a 10-year period between 1995 and 2005, when developing countries exhibited overall relatively strong growth. PublicationCurrency Crises and Government Finances(World Bank, Washington, DC, 2002-05) Burnside, CraigFiscal policy plays a big role in currency crises - before, and after they occur. Thus policymakers should not underestimate the importance of fiscal policy: a) the realization of large contingent liabilities can quickly, and dramatically alter government finances, leading to a currency crisis; b) the effects of a currency crisis on government finances depend on the structure of government revenue, spending, and debt; c) the fiscal policies adopted in response to a crisis, influence economic outcomes, especially inflation, and depreciation. The note reviews the traditional models of currency crises, explained as a consequence of unsustainable fiscal policy, and how debt is accumulated, how currency crisis then develops, and why does fiscal policy matter. Focusing on bank bailouts, it is argued that traditional models of currency crises are applicable to emerging markets, suggesting that deficits after the East Asia financial crises could have been anticipated given the region's deteriorating banking systems, but that economic outcomes largely depend on the mix of financing. PublicationSaving - What Do We Know, and Why Do We Care?(World Bank, Washington, DC, 1999-08) Servén, Luis; Schmidt-Hebbel, KlausIn principle, there is little reason people, and countries facing different shocks, and income streams should strive for optimal saving rates. But in practice, the inter-temporal choices that underlie saving, are subject to externalities, market failures, and policy distortions, that can cause saving rates to differ from welfare-maximizing levels. The social value of saving could also exceed its private value, because of imperfections in global financial markets. Still, a national saving rate broadly in line with an economy's investment rate, reduces vulnerability to sudden shifts in international capital flows, driven by uncontrollable behavior, or self-fulfilling investor expectations. Yet, as shown by the recent East Asia crisis, high saving alone does not provide complete insurance against the consequences of weak financial systems, or unsustainable exchange rate policies. This is the subject analyzed in this note, through a recent Bank research project, that shows savings has important interactions with income and growth, with resulting implications for policy. Such policies that spur development are an indirect, but effective way to raise private saving. The note further examines this private saving, and public policy, outlining fiscal issues, financial liberalization, and the impact of pension reform. The note reflects on situations where reforms both invite aid, and induce higher investment and growth - so that aid and saving rise together - concluding that aid need not invariably crowd out national saving. PublicationGlobal Development Finance Projects Slow Growth for 1999(World Bank, Washington, DC, 1999-05) Aiyar, Swaminathan S.; Brahmbhatt, MilanThe growth prospects of developing countries have worsened over the past six months, world trade growth has slowed, capital flows are unlikely to recover to pre-crisis levels in the near term, and, commodity prices are weak. This note reviews the reduced access to international capital flows by most emerging countries, as a result of the financial crises, while dollar export prices for developing countries fell eleven percent in 1998, with both primary commodities, and manufactures suffering. As a result, world trade fell one percent in current dollars in 1998, the first decline since 1993, while global trade volume in goods, grew only four to five percent in 1998, the slowest advance since 1992, barely half the performance in 1997. The note provides an outlook for developing regions, with expected differences in performance between regions, noting significant downside risks to even this somber outlook, and, predicts potential revival of protectionist sentiments in the United States, and Europe, should economic activity contract. PublicationReducing Vulnerability to Speculative Attacks(World Bank, Washington, DC, 1999-02) Calvo, SaraThe note focuses on the speculative attack on domestic assets, which can occur irrespective of country's fiscal situation, suggesting political economy considerations may be the reason. However, recent events have reopened the debate on how to reduce vulnerability to capital outflows in developing countries, though other risk factors have been identified, which if minimized, can still reduce vulnerability to speculative attacks. It addresses the perils of inconsistent macroeconomic policies, as evidenced in Argentina, where the Central Bank was financing the government's budget deficit by creating money, while trying to keep the exchange rate fixed. Moreover, a speculative attack on bonds, instead of currency, can also lead to a devaluation, such as a sudden shift in perceptions about macroeconomic stability, may lead to a loss in reserves, as in Mexico's 1994 crisis, when high interest rates associated with a currency defense was perceived as intolerable. This is substantiated through case studies, which further include the expectation of realized contingent liabilities, a drop in tax revenues associated with business cycles driven by capital inflows, and investor refusal to roll over debt in countries other than the crisis country, know as contagion. Recommendations include the adoption of consistent macroeconomic policies; reduction of debt rollover risks; strengthening financial regulation; and, capital flows regulation. PublicationDoes Debt Management Matter? YES(World Bank, Washington, DC, 1999-02) Kiguel, Miguel A.Debt management can reduce financial vulnerability by limiting liquidity, and rollover risks. This note reviews Argentina's debt management strategy, towards improving the country's credit rating to an investment grade, providing flexibility, liquidity, and opportunity. However, the risks of refinancing can be larger for domestic currency debt, than for foreign currency debt. Lessons from Argentina's experience suggest that volatile flows can be dealt with, through prudential regulation in the banking sector, and overall sound policies in capital markets. Furthermore, avoiding the conversion of private debt into public debt, also helped Argentina overcome the crisis; but perhaps, the biggest challenge is to develop new indicators of financial vulnerability, which should put more weight on stocks of debt, and other financial assets, rather than on flow indicators, such as the current account deficit. PublicationTrade and the East Asian Crisis(World Bank, Washington, DC, 1998-04) Hoekman, Bernard; Martin, WillThis economic policy note addresses the issue of the East Asian financial crisis, suggesting that recent trade socks, were both a cause and a consequence of this crisis. It further suggests that, though it appears that these trade shocks were largely cyclical in nature, structural changes and policy choices may also have played a role. Dramatic trade changes in the region took place, where the region's overall imports dropped by 4 percent, with a significant 18 percent drop in imports from Japan. Export growth is considered to be a major prospect for short-term economic expansion in the region, depending in part on the composition and pattern of trade flows. The note also suggests that policy implications should be considered, such as heavy investments in education and skills upgrading. Furthermore, macroeconomic policies will be required to capitalize on the initial boost to competitiveness, provided by recent devaluations in the region. The inevitable risk of adjustment pressures in OECD markets exists, though raising barriers should be avoided, since this would harm East Asia's recovery. PublicationWhat Effect Will East Asia's Crisis Have on Developing Countries?(World Bank, Washington, DC, 1998-03) Dadush, Uri; Lynn, Robert; Riordan, Mick; Dasgupta, Dipak; Johannes, RonaldThis note summarizes recent projections on the longer-term effects of the East Asia's financial crisis, and the significant effect already felt in developing countries. Five main points are examined, as follows: 1) though trade will drive the recovery, adjustment will be deep and protracted, in the region, mostly in Indonesia, Korea, Malaysia, the Philippines and Thailand; 2) developing countries will be mostly affected, since reductions in growth are estimated to double due to high trade multipliers, terms of trade movements, as well as tight monetary and fiscal policies in those countries relying on private capital flows; 3) because of lower oil prices, oil importing countries stand to lose the most, with Latin America, the Middle East, and North and Sub-Saharan Africa the hardest hit; 4) the crisis will bear a significant effect on the world economy, though not nearly as damaging as the 1973 and 1978 oil shocks; and 5) increased risks, such as a spillover or cutoff in credit, for developing countries are estimated, though predicted to be manageable.