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Law > Business and Financial

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Cover Departmental Papers
Navigating External Shocks in Southeast Asia's Emerging Markets: Key Lessons and Challenges in Applying the IMF’s Integrated Policy Framework
Corinne C Delechat, Umang Rawat, and Ara Stepanyan
As relatively small open economies, South-East Asian emerging markets (Indonesia, Malaysia, Philippines and Thailand or ASEAN-4) are highly susceptible to external shocks—both financial and real—that could induce large capital flows and exchange rate volatility that could lead to foreign exchange market dysfunction. With the exception of Bank Negara Malaysia, ASEAN-4 central banks mostly have flexible inflation-targeting frameworks for monetary policy implementation. Their main policy objectives include medium-term price stability, sustainable economic growth, and financial stability. Central Banks in ASEAN-4 economies have been early pilots in the operationalization of the IMF’s Integrated Policy Framework (IPF) in 2022-23, given their experience in using multiple policy tools besides the monetary policy rate, including macroprudential measures, foreign exchange intervention (FXI), and capital flow management measures, to achieve their multiple objectives. They have welcomed the IPF as a systematic, frictions-based approach to analyze the use of these multiple tools to manage trade-offs across policy objectives. This paper takes stock of the experience from these pilots, both from the perspective of country authorities and of IMF country teams. It aims at distilling key lessons, which could be used to inform broader IPF operationalization. The IPF conceptual framework and a related quantitative model were used to assess policy trade-offs in ASEAN-4 in the event of adverse external shocks. These applications reaffirmed the importance of using monetary policy to address persistent inflationary pressures stemming from real shocks and allowing the exchange rate to act as a shock absorber. However, a complementary use of FXI could improve trade-offs between price, financial, and output stability when economies are faced with large and financial shocks that result in abrupt spikes in uncovered interest rate parity premia resulting in inefficiently tight financial conditions that could hurt growth or risking to de-anchor inflation expectations. The IPF pilots also highlighted some challenges faced when operationalizing IPF principles, notably regarding the assessment of frictions and shocks that might justify the use of FXI. In particular, country teams at times lacked sufficient information to adequately assess the extent of frictions. Moreover, the time-varying nature of IPF frictions and the non-linear effects of shocks make it difficult to assess situations when benefits of a complementary use of FXI would overweigh its costs.
Keywords:
ASEAN; foreign- exchange intervention; Inflation targeting; Integrated policy framework; capital flows; IPF pilot; market dysfunction; IMF country team; IPF model; Policy mix; IMF seminar participant; Currency markets; Exchange rates; Inflation; Southeast Asia; Global
Cover IMF Staff Country Reports
Chile: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Chile
International Monetary Fund. Western Hemisphere Dept.
The 2023 Article IV Consultation highlights that macroeconomic imbalances built during the pandemic have been largely resolved, supported by tighter macroeconomic policies deployed during late 2021–22 in Chile. Growth is expected to pick up to close to 2 percent in 2024 and 2–2.5 percent in the medium term. Inflation is projected to converge to the 3-percent target in 2024. Key external risks are the uncertainties around the potentially higher-for-longer interest rates in advanced economies, a growth slowdown in major trading partners, and the intensification of regional conflicts in the world. Policies have supported macroeconomic stability. In the context of disinflation acceleration, the Central Bank of Chile lowered the monetary policy rate by 400 basis points since July 2023. The headline fiscal balance is estimated to decline to about -2.5 percent of gross domestic product in 2023 due to weaker tax revenues amid an economic slowdown, lower copper prices, and other transitory factors. The 2024 budget envisions a moderate deficit reduction within a medium-term fiscal plan to a broadly balanced fiscal position by 2026. The ongoing implementation of the countercyclical capital buffer will strengthen financial resilience in periods of stress.
Keywords:
basket weight; CPI data; CPI calculation methodology; liability positions vis-à-vis nonresident; money market rate; Fiscal stance; Inflation; Income; Global; Caribbean
Cover Policy Papers
The Managing Director's Global Policy Agenda, Spring Meetings 2023: Safeguard Economic Stability, Support Vulnerable Countries, Sustain Our Future Prosperity
International Monetary Fund
The global economy is at another highly uncertain moment: tentative signs of stabilization earlier this year have receded, and the outlook is increasingly risky and uncertain. At the same time, divisions within and across countries are deepening, exacerbated by rising fragmentation. Strong policy action is needed together with pragmatic approaches to find areas of common ground to respond to shared challenges. The IMF is proactively engaging with our members to chart a clear course to a stronger and more sustainable path for the global economy.
Keywords:
support vulnerable country; Policy agenda; spring meetings 2023; future prosperity; vulnerable country; Financial sector stability; Climate change; Inflation; Global
Cover IMF Staff Country Reports
Jamaica: Sixth Review Under the Stand-By Arrangements-Press Release; Staff Report; and Statement by the Executive Direct for Jamaica
International Monetary Fund. Western Hemisphere Dept.
This paper discusses Jamaica’s Sixth Review Under the Stand-By Arrangement (SBA). All quantitative performance criteria, indicative targets, and the structural benchmark at end-June were met, marking a successful completion of the SBA. Discussions centered on policies to lock-in macroeconomic stability and advance supply-side reforms to promote inclusive growth, including: building institutions and advancing fiscal reforms to safeguard and sustain economic stability and debt reduction; improving monetary operations and policy transmission; and bolstering financial inclusion, access to credit, and formality. Most structural policy commitments are on track, although some key reforms to public sector transformation, the compensation framework for public employees, legislation to establish a fiscal council, and creating a special resolution regime for financial institutions have been delayed due to capacity constraints and the need to build stakeholder support for these reforms. Important gains have been made in the oversight of financial institutions.
Keywords:
ISCR; CR; policy; IMF's Executive Board; governance framework; reform commitment; government; implementing policy; fund program arrangement; Public sector; PFM legal and regulatory frameworks; Fuel prices; Global
Cover IMF Staff Country Reports
Nepal: Selected Issues
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper examines the degree to which inflation co-moves between India and a panel of countries in Asia. The paper shows that the considerable co-movement in headline inflation rates between India and Nepal is driven almost exclusively by food-inflation co-movement. By contrast, the role for inflation spillovers emanating from India in driving non-food inflation in Nepal appears limited. The implication is that Nepal should rely on domestic monetary policy rather than stable inflation in India to achieve stable domestic inflation. The main takeaway from the results is that food inflation co-movement between India and other countries is higher in cases where the co-movement in rainfall deviations from seasonal norms is highest. Since core inflation co-movement is weak, idiosyncratic domestic factors such as economic slack, exchange-rate movements, and differing degrees of passthrough from food- and energy-price shocks play an important role. This finding is critically important for monetary policy, especially since domestic policy is primarily effective only in controlling core inflation. Thus, domestic monetary policy needs to be calibrated to domestic inflationary pressures—Nepal cannot necessarily rely on stable inflation in India to achieve stable domestic inflation.
Keywords:
ISCR; CR; Nepal; headline inflation inflation rate; SME credit guarantee scheme; policy effort; SME lending; India-Nepal case; government initiative; Fiscal federalism; Financial inclusion; Inflation; Asia and Pacific; Global; South Asia
Cover IMF Staff Country Reports
Morocco: Ex Post Evaluation of Exceptional Access Under the 2012 Precautionary and Liquidity Line Arrangement
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses Morocco’s Ex Post Evaluation of Exceptional Access Under the 2012 Precautionary and Liquidity Line (PLL) Arrangement. The Ex Post Evaluation confirms that the 2012–14 PLL arrangement was consistent with the PLL qualification standards and requirements under the exceptional access policy at the time of the PLL arrangement request in August 2012 and at the subsequent reviews. The authorities’ policies helped maintain macroeconomic stability and reduce fiscal and external vulnerabilities, despite unfavorable external developments. It is observed that despite the significant macroeconomic achievements under the 2012–14 PLL arrangement, a number of policy challenges remained to be fully addressed.
Keywords:
IMF Deputy managing director; fund policy; draft central bank bank charter; PLL exit; PLL eligibility; government action; Government debt management; Oil prices; Fiscal stance; Current account deficits; Global; Europe; Maghreb; Sub-Saharan Africa
Cover IMF Staff Country Reports
Republic of Poland: Arrangement Under the Flexible Credit Line and Cancellation of the Current Arrangement-Staff Report; Press Release; and Statement by the Executive Director for the Republic of Poland
International Monetary Fund. European Dept.
KEY ISSUES Background: Poland’s strong fundamentals and sound policies helped it to successfully withstand several bouts of market turbulence and paved the way for economic recovery. While Poland has benefited from its continued transformation into a more open and dynamic economy, its substantial trade and financial linkages with global markets, combined with still-large financing needs, also make it vulnerable to external shocks. Outlook and risks: With only modest growth in its trading partners, economic activity in Poland is expected to remain moderate in the near term. Risks remain tilted to the downside amid concerns about a protracted slowdown in the euro area, continued geopolitical tensions in the region, and uncertainty surrounding normalization of monetary policy in the United States. Domestically, the risk of continued disinflation remains high. Flexible Credit Line (FCL): Against this background, the authorities are requesting a new two-year precautionary FCL arrangement with proposed lower access in the amount of SDR 15.5 billion (918 percent of quota) and cancellation of the current arrangement, approved on January 18, 2013. Poland’s improved economic fundamentals and increased policy buffers have reduced financing needs. However, external risks remain elevated. In this context, the authorities consider that a new FCL in the requested amount would provide an important insurance against external risks, help sustain market confidence, and support their economic strategy. At the same time, the authorities consider that the substantial reduction in access sends a clear signal of their intention to fully exit from the FCL once external risks recede. In staff’s view, Poland continues to meet the qualification criteria for access under the FCL arrangement. Fund liquidity: The impact of the proposed commitment of SDR 15.5 billion on Fund liquidity would be manageable. Process: An informal meeting to consult with the Executive Board on a possible FCL arrangement for Poland was held on December 19, 2014.
Keywords:
ISCR; CR; FCL arrangement; Poland; SDR; Poland's economy; executive board discussion; mortgage origination; macroeconomic performance; successor arrangement; Debt service; Inflation; Global; Eastern Europe
Cover IMF Working Papers
Asia’s Stock Markets: Are There Crouching Tigers and Hidden Dragons?
Mr. Fabian Lipinsky and Ms. Li L Ong
Stock markets play a key role in corporate financing in Asia. However, despite their increasing importance in terms of size and cross-border investment activity, the region’s markets are reputed to be more “idiosyncratic” and less reliant on economic and corporate fundamentals in their pricing. Using a model that draws on international asset pricing and economic theory, as well as accounting literature, we find evidence of greater idiosyncratic influences in the pricing of Asia’s stock markets, compared to their G-7 counterparts, beyond the identified systematic factors and local fundamentals. We also show proof of a significant relationship between the strength of implementation of securities regulations and the “noise” in stock pricing, which suggests that improvements in the regulation of securities markets in Asia could enhance the role of stock markets as stable and reliable sources of financing into the future.
Keywords:
WP; IOSCO; business cycle; arbitrage pricing theory; Asian financial crisis; fundamentals; global financial crisis; idiosyncratic factors; integration; securities regulation; stock market; stock pricing; term structure of interest rates; Tokyo SE group; stock market return; Shenzhen SE; London SE group; market liquidity; stock market volatility; Asia's stock markets; Shanghai SE; Indonesia SE; Osaka SE; stock market capitalization; Santiago SE; Stock markets; Asset prices; Securities markets; Stocks; Asia and Pacific; Global
Cover IMF Staff Country Reports
Euro Area Policies: 2011 Article IV Consultation-Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Member Countries
International Monetary Fund
In this study, the risks related to the euro area sovereign debt crisis are analyzed. Methods used to implement the European Financial Stability Facility (EFSF) are overviewed, and the European Stability Mechanism (ESM), the European Systemic Risk Board (ESRB), and the European Supervisory Authority (ESA) are the important framework for financial reforms and macroprudential policies. In this paper, the improvement over the fiscal and structural governance stability and growth pact (SGP) and excessive deficit procedure (SDP) is discussed. Finally, the findings of spillover analysis are outlined.
Keywords:
ISCR; CR; euro; authority; single market; crisis; Euro Area authorities; ECB data; Plus Pact; governance framework; Euro area; financial system; interest rate; area flow; Inflation; Commercial banks; Fiscal consolidation; Global; Europe