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International Monetary Fund
Spain showed strong growth performance marked by robust job creation and a solid fiscal position. Executive Directors supported the National Reform Program (NRP), which focuses on improving productivity, market flexibility, and competitiveness. They commended the appreciable fiscal surplus, pension reserve fund, and the public debt reduction. They welcomed the new Budget Stability Law (BSL), appreciated the Financial Sector Assessment Program (FSAP) assessment and the monetary stance of the Bank of Spain. They emphasized the need to regain competitiveness through the implementation of structural reforms.
Jihad Dagher
Financial crises are traditionally analyzed as purely economic phenomena. The political economy of financial booms and busts remains both under-emphasized and limited to isolated episodes. This paper examines the political economy of financial policy during ten of the most infamous financial booms and busts since the 18th century, and presents consistent evidence of pro-cyclical regulatory policies by governments. Financial booms, and risk-taking during these episodes, were often amplified by political regulatory stimuli, credit subsidies, and an increasing light-touch approach to financial supervision. The regulatory backlash that ensues from financial crises can only be understood in the context of the deep political ramifications of these crises. Post-crisis regulations do not always survive the following boom. The interplay between politics and financial policy over these cycles deserves further attention. History suggests that politics can be the undoing of macro-prudential regulations.

finance, such as commercial bank loans, private bond placements, and sales of equity in stock markets. And private investors now seek to incorporate official sources of finance with government sponsorship into their projects—even going so far as to form joint ventures with state entities. The trend is clearly toward using the full range of financial tools available for oil and gas projects in developing countries. Thus, with a larger number of project partners and a wider range of financial instruments, project preparation has become much more complex. A critical

Maureen Lewis

to suggest that governments abrogate their responsibilities, but that they continue to coordinate and find innovative means of service delivery. Take the model in Haiti, where minimally trained outreach workers can reach out to low-income communities with the backing of highly technical management and oversight. Greater reliance on NGOs in delivery, hiring temporary workers for government programs, or government sponsorship of joint training offer possible solutions to some of the bottlenecks. * * * * * The AIDS pandemic’s devastation has spurred an

International Monetary Fund

), government sponsorship of activities with positive externalities (R&D, startup companies), or environmental protection, (iv) continuous review, the process of continuous monitoring and evaluation of reforms paths the way for new initiatives. Key measures have been achieved during the past year: ■ The government has made a point of ensuring that the labor market reform is based on a successful social dialogue as the best way to cement its effectiveness. A key issue addressed in the dialogue has been the very high incidence of temporary employment in Spain 8 . On

International Monetary Fund

securitized products and leveling the playing field between the GSEs and private entities . A. The Mortgage-Backed Securities Market After the Financial Crisis 1. Issuance of private-label residential mortgage-backed securities (RMBS)—the largest of the asset-backed securities (ABS) classes—has declined sharply . While agency RMBS issuance has remained strong on the back of government sponsorship and the funding advantage of the GSEs, private-label RMBS markets are effectively shut down. 2 Of the private-label RMBS issued in 2010, roughly two third—about $1


moral hazard incentives, which can be explained in the context of economic incentive theories explaining the relationship between the regulator and the regulated. Behavior of Regulators The modern view of bank regulation espoused by Edward Kane and others 12 is based on a correspondence between concepts germane to theories of market behavior, on the one hand, and the manifestations of regulatory activity, on the other. Financial regulatory services are produced and delivered by governmental entities because government sponsorship confers a number of marketing