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Mr. Leslie E Teo, Mr. Charles Enoch, Mr. Carl-Johan Lindgren, Mr. Tomás J. T. Baliño, Ms. Anne Marie Gulde, and Mr. Marc G Quintyn

Financial and corporate sector weaknesses played a major role in the Asian crisis in 1997. These weaknesses increased the exposure of financial institutions to a variety of external threats, including declines in asset values, market contagion, speculative attacks, exchange rate devaluations, and a reversal of capital flows. 1 In turn, problems in financial institutions and corporations worsened capital flight and disrupted credit allocation, thereby deepening the crisis. As a consequence, policy responses to the crisis emphasized structural reforms in the

Laurence M. Ball, Mr. Nicolas de Roux Uribe, and Mr. Marc Hofstetter
JEL Cl This study constructs a new data set on unemployment rates in Latin America and the Caribbean and then explores the determinants of unemployment. We compare different countries, finding that unemployment is influenced by the size of the rural population and that the effects of government regulations are generally weak. We also examine large, persistent increases in unemployment over time, finding that they are caused by contractions in aggregate demand. These demand contractions result from either disinflationary monetary policy or the defense of an exchange - rate peg in the face of capital flight. Our evidence supports hysteresis theories in which short - run changes in unemployment influence the natural rate.
Mr. Marc G Quintyn and Mr. David S. Hoelscher

, and reversal of capital flows. This vulnerability in turn helped foster speculative attacks and worsen capital flight, increasing losses and raising the ultimate resolution costs. The policy response of authorities has also been key. Russia, for example, did not offer a blanket guarantee and did not recapitalize banks with public funds. While the costs to the economy may have been lower had there been more active public intervention, the direct costs to the state were low. The quality of the policy response, in terms of either macroeconomic adjustment or the

International Monetary Fund

. 12. The banking system and nonfinancial corporate sector are often vulnerable to large swings in exchange and interest rates. As discussed in section III , the critical issue is whether in the run up to a sovereign restructuring, the combination of these effects could weaken public confidence in the banking system to a point that triggers a deposit run. Problems in financial institutions disrupt credit allocation, worsen capital flight, and deepen the crisis. 13. Although it is hard to generalize from recent experience, countries faced with an unsustainable

Laurence M. Ball, Mr. Nicolas de Roux Uribe, and Mr. Marc Hofstetter

exchange rate was rigid. When unemployment rose, it stayed high because the economy lacked the “shock absorber” of depreciation. Argentina (1987–1997) : Argentina experienced capital flight in the 1990s, resulting first from the Mexican crisis of 1994 and then from its own rising debt and loss of confidence in its currency board. After the currency board fixed the nominal exchange rate 1991, Argentine inflation exceeded U.S. inflation for several years, causing a real appreciation of 60 percent. The combination of overvaluation and worsening capital flight pushed

International Monetary Fund. Western Hemisphere Dept.

procyclical policy stance, arguably worsening capital flight rather than boosting confidence. The political space became narrower as the program proceeded and the elections came closer, interacting with market sentiment. D. What Could Have Been Done to Improve the Program? 65. The revisions to the strategy adopted at the time of the First Review in October 2018 raised the chances of success . In particular, the revised strategy simplified and clarified the objectives, notably of monetary policy, which should have facilitated communication, and was combined with a

International Monetary Fund. Western Hemisphere Dept.
On June 20, 2018, the Executive Board approved the largest stand-by arrangement in the Fund’s history, in support of Argentina’s 2018-21 economic program. After an augmentation in October 2018, access under the arrangement amounted to US$57 billion (1,227 percent of Argentina’s IMF quota). The program saw only four of the planned twelve reviews completed, and did not fulfil the objectives of restoring confidence in fiscal and external viability while fostering economic growth. The arrangement was canceled on July 24, 2020.