Wednesday, April 20, 2016

Brookings Panel on China and the Global Economy - 14 April 2016

Minneapolis Fed Symposium on Ending Too Big To Fail - 4 April 2016

Monday, April 18, 2016

IMF Panel on Fortifying the Global Financial Safety Net - 14 April 2016

"An emerging market is a country that is growing rapidly but whose (financial & regulatory) institutions haven't the credibility (they need) yet", said Raghuram Rajan. "Of course there is a wide variety of emerging markets, e.g. Chile has built up credibility in its fiscal and monetary policies, but many of us are working to build (that) credibility. In this situation, a 'competitive devaluation' does not quite work, but rather brings in inflation, and becomes an investor worry too."... (slight paraphrase).

"Jonathan Ostry and Jeromin Zettelmeyer et al at the IMF put together a proposal 13 years or so ago when I was at the Fund - on what ex-ante facilities would look like. And the idea was we need to create a stigma-free access to liquidity that (countries) would go to early on. And their idea was 'Qualify everybody!' or rather, not everybody would qualify but 'rate everybody'. So even the United States would be rated on their ability to access liquidity, and... its important that it be quick. you could declare an emergency (area) and then any (country) in that area could access the liquidity... then central banks could come and lend into that pool, and the pool would then lend to the country, for a short duration, and if the country could not repay within that short duration, it gets kicked into an IMF backup facility, so central banks are just providing liquidity, they get their money back, because it is backed up by the IMF guarantee." Raghuram Rajan on (emergency) liquidity provision for countries in the context of the Global Financial Safety net theme.

"In other words, contingent automatic credit lines",said Pierre Olivier Gourinchas.... "Some market developments have moved in that direction, for example, growth warrants... (but they haven't gone too far)."

"I am obliged to play the role of skunk at the garden party", said David Lipton (in respect of these different liquidity proposals).

"Rating is not a bad word... Article IV consultations are essentially a rating program, because they authorize country-specific lending in terms of multiples of their quota... " said Raghuram Rajan in response (slight paraphrase). "And how do liquidity crises arise anyway - they arise because the private sector becomes unwilling to lend... because it worries about its ability to access the (state-guaranteed) contingent liquidity provisions... now some of this could be irrational, or it could be perfectly rational (in the limited-information sense), because it does not have access to the same resources as the public sector (like the Fund).... and the point about this access to liquidity is that it is made available when the (country) is solvent but illiquid, a determination that Central Banks have to make all the time." said Raghuram Rajan.

"Liquidity problems don't just arise because of corruption",said Raghuram Rajan, "they arise because of a mismatch between the duration of the investment that has been made (for example, in infrastructure) and the financing that might have been available, which might have been short-term, or a mix (of short-and long-term). But if you do think infrastructure investments are useful to encourage, then in fact the provision of liquidity might be useful." "And with respect to India's role in the Global Financial Safety Net - we are participating in some of these regional arrangements, there is in fact a SAARC Facility (which India has contributed to) and which has been drawn down. Going forward our engagement with the Global Financial Safety Net will increase, and if in fact we decide on a Reserve Pooling Arrangement, India will be part of it....BRICS Bank is in existence, but is called the New Development Bank, and it is getting ready to make its first loan." said Raghuram Rajan.

Update April 28 2016 The IMF has also made available a podcast of an interview with Raghuram Rajan on the Global Financial Safety Net, on soundcloud here.

IMF Panel on The Political Economy of Structural Reforms - 14 April 2016

"The biggest challenge, and the biggest enemy of structural reform is populism", said panelist and Spanish Minister of Economy and Competitiveness since 2011, Luis de Guindos Jurado, "and populism is pervasive now." (at 16:25 in the clip).
"The most corrosive aspect of the populism....(is the public perception that) whenever regulators engage with industry to arrive at a justifiable cost-benefit tradeoff on regulations versus social benefit, that they (the regulators) have become ipso facto co-opted, and that they are no longer independent regulators! The result is that the final regulations become crippling for the industry." (slight paraphrase of Diana Farrell).
"Structural reform is a continuous, ongoing process, but the one indispensable prerequisite is leadership", Mauricio Cárdenas, Minister of Finance and Public Credit of Colombia since September 2012.
"Leadership is important, but process is also important. Where you do reforms and where you are is very important. Low-income countries should focus on agriculture, tariff issues, price-liberalization and market-enabling reforms; and emerging market countries should focus on labor market, regulatory, banking, and telecommunication & transportation sector reforms; while advanced economies should focus on innovation, supporting research & development and on pushing productivity up and the production possibility frontier forward." Min Zhu, Deputy Managing Director, IMF said.
"Informal sector size is determined in part by the regulatory environment and the tax code, e.g., hiring more than 5 and certainly more than 50 workers subjects a company to extremely burdensome regulations." Min Zhu