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Ms. Juliana Dutra Araujo, Jose M Garrido, Emanuel Kopp, Mr. Richard Varghese, and Weijia Yao
This paper presents principles that could guide the design of more targeted policy support and facilitate the restructuring of firms adversely impacted by the COVID-19 pandemic. To this end, the paper takes stock of vulnerabilities and risks in the enterprise sector and assesses countries’ preparedness to handle a large-scale restructuring of businesses. Crisis preparedness of insolvency systems is measured according to a newly designed indicator that includes five dimensions of the insolvency and restructuring regime (out-of-court restructuring, hybrid restructuring, reorganization, liquidation, and the institutional framework). Vulnerabilities tend to be more pronounced in jurisdictions with shortcomings in crisis preparedness, and those countries need to step up efforts to improve their insolvency systems.
Ms. Juliana Dutra Araujo, Jose M Garrido, Emanuel Kopp, Mr. Richard Varghese, and Weijia Yao

This paper presents principles that could guide the design of more targeted policy support and facilitate the restructuring of firms adversely impacted by the COVID-19 pandemic. To this end, the paper takes stock of vulnerabilities and risks in the enterprise sector and assesses countries’ preparedness to handle a large-scale restructuring of businesses. Crisis preparedness of insolvency systems is measured according to a newly designed indicator that includes five dimensions of the insolvency and restructuring regime (out-of-court restructuring, hybrid restructuring, reorganization, liquidation, and the institutional framework). Vulnerabilities tend to be more pronounced in jurisdictions with shortcomings in crisis preparedness, and those countries need to step up efforts to improve their insolvency systems.

Mai Dao, Ms. Camelia Minoiu, and Mr. Jonathan David Ostry
We examine the relationship between real exchange rate depreciations and indicators of firm performance using data for a sample of more than 30,000 firms from 66 (advanced and emerging market) countries over the 2000-2011 period. We show that depreciations boost profits, investment, and sales of firms that are more financially-constrained and have higher labor shares. These findings are consistent with the view that depreciations boost internal financing opportunities by reducing real wages, thereby spurring investment. We show that these effects on firm performance are enduring, including in the market valuation of firms.
Mr. Dmitry Gershenson, Mr. Albert Jaeger, and Mr. Subir Lall

In the years preceding the economic crisis, the corporate sector experienced rapid debt accumulation. The stock of nonfinancial corporation (NFC) debt stands at 112.7 percent of gross domestic product (GDP) on a consolidated basis as of 2015:Q2, one of the largest in the EU. Excessive corporate leverage constrains profitability, resulting in higher nonperforming loans (NPLs) and lower business investment. Yet both banks and NFCs face disincentives to speed up the deleveraging process. The authorities have taken some important steps to facilitate corporate debt restructuring, including enhancing the legal and institutional framework. The current economic and financial environment affords an opportunity to tackle the corporate debt overhang more ambitiously with a standardized bank-led, time-bound framework.

Michael Walton, Anusha Nath, and Mr. Ashoka Mody
Some see India’s corporate sector as the fundamental driver of recent and future prosperity. Others see it as a source of excessive market power, personal enrichment, and influence over the State, with an ultimately distorting influence. To inform this debate, this paper analyses the correlates of profitability of firms listed on the Bombay Stock Exchange, covering a dynamic period-in terms of firm entry and growth-from the early 1990s to the late 2000s. Overall, the results do not provide support for the systematic exercise of market power via the product market. At least for this period, the story is more consistent with a competitive and dynamic business sector, despite the continued dominance of business houses and public sector firms in terms of sales and assets. Those with opposing views can, with justification, argue that our analysis does not cover influences, such as corporate governance and state-corporate relations, which may paint a less flattering picture of the corporate sector’s role. Those broader themes deserve further attention.
Yishay Yafeh, Mr. Kenichi Ueda, and Mr. Stijn Claessens
Financial frictions have been identified as key factors affecting economic fluctuations and growth. But, can institutional reforms reduce financial frictions? Based on a canonical investment model, we consider two potential channels: (i) financial transaction costs at the firm level; and (ii) required return at the country level. We empirically investigate the effects of institutions on these financial frictions using a panel of 75,000 firm-years across 48 countries for the period 1990 - 2007. We find that improved corporate governance (e.g., less informational problems) and enhanced contractual enforcement reduce financial frictions, while stronger creditor rights (e.g., lower collateral constraints) are less important.
Mr. Jeremy Clift and Mr. Daniel Kaufmann

Recovery from the deepest recession in 60 years has started. But sustaining it will require delicate rebalancing acts, both within and across countries. IMF chief economist Olivier Blanchard writes in our lead article that the turnaround will not be simple. The crisis has left deep scars that will affect both supply and demand for many years to come. This issue of F&D also looks at what’s next in the global crisis and beyond. We look at ways of unwinding crisis support, the shape of growth worldwide after the crisis, ways of rebuilding the financial architecture, and the future of reserve currencies. Jeffrey Frankel examines what’s in and what’s out in global money, while a team from the IMF’s Research Department looks at what early warning systems can be expected to deliver in spotting future problems. In our regular People in Economics profile, we speak to Nobel prize winner Daniel Kahneman, whose work led to the creation of the field of behavioral economics, and our Picture This feature gives a timeline of how the Bank of England’s policy rate has fallen to its lowest level in 300 years. Back to Basics gives a primer on monetary policy, and Data Spotlight looks at how the crisis has affected the eastern European banking system.

Mr. Clinton R. Shiells, Mr. Antonio Spilimbergo, Mr. Vladimir Klyuev, and Raghuram Rajan

The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.