World Economic Outlook, May 1999: International Financial Contagion: A Survey

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This issue of the World Economic Outlook examines the potential spillovers from these transitions and the appropriate policy responses. Chapter 3 explores how output comovements are influenced by policy and financial shocks, growth surprises, and other linkages. Chapter 4 assesses why certain emerging market economies were able to avoid the classical boom-and-bust cycle in the face of volatile capital flows during the global financial crisis. World Economic Outlook Update. Against this backdrop, the projections in this WEO Update imply that global growth will strengthen gradually through , averaging 3.

International Financial Architecture and International Financial Standards

Partly because of a somewhat better-than-expected first quarter, the revised baseline projections in this WEO Update suggest that these The global expansion remains unbalanced. Growth in many advanced economies is still weak, considering the depth of the recession. In addition, the mild slowdown observed in the second quarter of is not reassuring.

In advanced economies, activity has moderated less than expected, but growth remains subdued, unemployment is still high, and renewed stresses in the euro area periphery are contributing to downside risks. In many emerging economies, activity remains buoyant, inflation pressures are emerging, and there are now some signs of overheating, driven in part by strong capital inflows. Date: January 25, IMF World Economic Outlook WEO - Recovery, Risk, and Rebalancing, October -- Table of Contents Description : Global economic recovery rests on two rebalancing acts: internal rebalancing to strengthen private demand in advanced economies, and external rebalancing to increase net exports in deficit countries and decrease net exports in surplus countries.

This October edition of the World Economic Outlook examines the dynamics of such global rebalancing. Table of Contents The forecast for is unchanged. Some economies, notably in Asia, are off to a strong start, but growth in others is constrained by lasting damage to the financial sector and household balance sheets. The challenge for policymakers is to ensure a smooth transition of demand, while maintaining supports that promote growth and employment.

There is also a need to contain and reduce public debt and repair and reform the financial sector. This issue of the WEO also explores two other key challenges in the wake of the Great Recession: how to spur job creation in the face of likely high and persistent unemployment in advanced economies, and how economies that previously ran large current account surpluses or deficits can promote growth by rebalancing external and domestic demand Date: April 14, Description: The global recovery is off to a stronger start than anticipated earlier but is proceeding at different speeds in the various regions Table 1.

Following the deepest global downturn in recent history, economic growth returned and broadened to advanced economies in the second half of Date: January 26, full PDF file here. Monetary policymakers should put more emphasis on macrofinancial risks. This would imply tightening monetary conditions earlier and more vigorously to try to prevent dangerous excesses from building up in asset and credit markets, even if inflation appears to be largely under control. Date: October Description: The global economy is beginning to pull out of a recession unprecedented in the post-World War II era, but stabilization is uneven and the recovery is expected to be sluggish.

Date: July 08, Table of contents Date: April 16, Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy.

Press Briefing: World Economic Outlook (WEO)

As of January 1, , the European Monetary Union is now official the currencies have all been permanently pegged to the Euro. This united economic block has a coordinated monetary policy now. Therefore, it is not a stretch to believe this group may vote as a block on IMF issues. If this happens, the EU will have the most power and votes. If they can gain support from other countries, similar to the U.

All member nations will have to consider this when interacting with the IMF in the future. The World Bank is primarily responsible for financing economic development. Also, the International Finance Corporation, which raises funds for private enterprises in developing countries, the International Center for Settlement of Investment Disputes and the Multilateral Guarantee Agency are associated with, but separate, from the World Bank.


The Bank has a very diverse employee base, ranging from economists to lawyers, to statisticians, to experts in telecommunications, water treatment and health care. The World Bank serves as an investment bank, brokering between investors and recipients, borrowing from one and lending to the other. The Bank obtains most of the funds that it lends to its member nations by borrowing through the issuance of AAA bonds that are guaranteed by the member governments. The proceeds of these bond sales are lent in turn to developing countries at affordable rates of interest to help finance projects and policy reform programs that are deemed necessary.

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The IDA is financed mostly by grants from member countries. The World Bank lends only to creditworthy governments of developing nations. The poorer the country, the more favorable the conditions under which it can borrow from the Bank. These loans carry an interest rate slightly above the market rate at which the Bank itself borrows and must be repaid within years. These loans are interest free and have a maturity of 35 or 40 years. The Bank views development as a long-term, integrative endeavor. The Bank focuses most of its efforts on funding projects that can directly benefit the poorest people in a developing country.

The direct involvement in economic activity is being promoted through lending for agriculture and rural development, small-scale enterprises, and urban development. The Bank is helping the poor to be more productive and to gain access to such necessities as safe water and waste-disposal facilities, health care, family-planning assistance, nutrition, education and housing. The World Bank provides most of its assistance to developing countries by supporting specific projects.

Every project financed by the Bank is designed in close collaboration with national governments and local agencies, and often in cooperation with other multilateral assistance organizations. In fact, about half of all Bank-assisted projects also receive cofinancing from official sources, such as governments, multi-lateral financial institutions, export-credit agencies that directly finance the procurement of goods and services, and private sources such as commercial banks. While making these loans, the Bank does not compete with other financing sources.

JEL classification

It will only assist projects where capital is not available from other sources on reasonable terms. The goal of the Bank is to help these developing countries graduate from needing special assistance. At this point, these countries would be able to raise funds for undertaking key projects from conventional sources of capital.

More than 24 have made enough progress for them to no longer need IDA money, leaving more resources for many new members who have recently joined. Similarly, over 20 countries that borrowed from the IBRD. The Bank also helps developing countries with macroeconomic analyses and strategy. As the Bank studies its member nations in order to effectively disburse loans, it learns which sectors are best and worst off.

It can then help these countries by designing policies to invigorate these nascent sectors. The Asian crisis differs from previous crises in many respects. As global financial markets developed, especially in the early s, capital was attracted to East Asia in large part because of exceptional record of growth and macroeconomic management.

However, serious weaknesses that had been concealed in part by the magnitude of the flows, and in part by the inadequacy of risk assessment by foreign creditors and weak supervisory practices in some creditor countries, eventually came to light with the onset of the crises. The crisis was not overnight in the making.

Its approach had been overshadowed and concealed by the economic boom in the area. Weaknesses in governance in the corporate, financial and government sectors, which made these Asian economies increasingly vulnerable to changes in market sentiment, a deteriorating external situation and contagion all contributed to the crisis. The combination of these long-term trends led to the most critical weakness — the immediate cause of the crisis — the accumulation of very large amounts of short-term debt. These weaknesses in return reflected more fundamental problems, including weak domestic bank supervision and regulation, a history of interference and the lack of sound commercial standards in the allocation of credit and pervasive explicit or implicit government guarantees.

Adding to these inherent problems in East Asia, the method by which capital flows were liberalized contributed to weakness in the financial sector. Through this liberalization, banks and corporations gained unprecedented ready access to large amounts of short-term external borrowing that was not adequately monitored by authorities. At the same time, longer-term capital inflows were liberalized more gradually and deliberately.

The consequence of sudden, rapid liberalization of short-term capital inflows and the slower, more deliberate liberalization of long-term capital inflows made countries in East Asia highly vulnerable to sudden shifts in investor sentiment. Added to that, Thailand already had a relatively large fiscal imbalance going into The policy responses in early were not adequate.

Finally, the crisis began in the financial sector because of excessive maturity mismatches in balance sheets. Much has been written about what happened in Thailand, Indonesia and Korea. A brief summary of events leading to the crisis and policies implemented for each country follows.

Primary contributors to this built up pressure were an unsustainable current account deficit, significant appreciation of the real effective exchange rate, rising foreign debt in particular short-term , a deteriorating fiscal balance, and increasing difficulties in the financial sector. Reserve money growth accelerated sharply as the Bank of Thailand provided liquidity support for ailing financial institutions. However, the policy changes introduced with the floatation of the baht were inadequate.

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Market confidence failed to return and the baht depreciated by 20 percent against the U. In subsequent months, the baht continued to depreciate as roll-over of short-term debt declined and the crisis in Asia spread. Despite the fact that macroeconomic policies were on track and nominal interest rates were raised, market confidence further declined because of delays in the implementation of financial sector reform, political instability and poor communications of the key aspects of the program. In light of a larger than expected depreciation in the baht and a sharper than anticipated slowdown in the economy, the bailout program was strengthened at the first quarterly review on December 8, The indicative range for interest rates was raised and a specific timetable for financial sector restructuring was announced.

In early February , the baht started to strengthen as improvements in the policy setting revived market confidence. At each subsequent quarterly review March 4, ; June 10, ; September 11, , the program was again revised.