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2. IMF, Structural Adjustment, and Poverty: A Cross-National Difference-in-Differences Analysis, 1980-2018
- Author:
- Shih-Yen Pan, Lawrence P. King, and Elias Nosrati
- Publication Date:
- 01-2025
- Content Type:
- Working Paper
- Institution:
- Political Economy Research Institute (PERI), University of Massachusetts Amherst
- Abstract:
- The International Monetary Fund (IMF) has been one of the world’s most powerful international organizations in setting the parameters for economic reforms in the developing world. In this study, using data from 1980-2018 from 57 countries, we test competing hypotheses surrounding the impact of the IMF’s lending programs on poverty incidence in participant countries. Departing from the prevailing practice of relying on instrumental variables, we employ a novel difference-in-differences approach that ensures clean comparisons between “treatment” and “control” units based on their program participation histories. Besides providing a quantitative estimate of the average program effect, we evaluate whether the IMF’s alleged anti-poverty focus in recent decades has made any difference. We find that IMF program participation leads to large increases (3.6-5.7 percentage points) in the proportion of a country’s population living under the $3.65/day and $6.85/day international poverty lines (2017 PPP) and the countryspecific Societal Poverty Line. We also find that the poverty reduction measures incorporated by the IMF into its programs have not been effective in mitigating the poverty-increasing program effects. Overall, our findings show that IMF programs have been detrimental to the welfare of vulnerable populations in participant countries.
- Topic:
- Development, Economics, International Organization, and IMF
- Political Geography:
- Global Focus
3. Navigating Debt Sustainability: An In-Depth Analysis of the IMF's Debt Sustainability Framework and Its Critique
- Author:
- Hasan Cömert, Güney Düzçay, and T. Sabri Öncü
- Publication Date:
- 01-2025
- Content Type:
- Working Paper
- Institution:
- Political Economy Research Institute (PERI), University of Massachusetts Amherst
- Abstract:
- This paper evaluates the IMF's debt sustainability analyses (DSAs), delving into their methodologies and implications and highlighting their problems. Since 2002, the DSAs have been the cornerstone of the IMF programs, providing the primary analytical tool to justify and determine the paths and targets specified. Although the DSAs evolved significantly over time, they have severe foundational problems. They rely heavily on strong assumptions and staff judgments, and thereby, they are primarily non-transparent. Secondly, there are significant issues regarding the conduct of DSAs. They have grown excessively complex, hindering consensus on components without necessarily improving assessment quality. Thirdly, the IMF makes very high-stakes decisions with low precision, relying on persistent over-optimism in growth forecasting and paving the way for tighter fiscal policies. Fourthly, the debt dynamics equation of DSAs is inconsistent with stock flow dynamics because it focuses heavily on the primary balance as the main driver. Fifthly, the IMF's framework does not pay enough attention to the underlying reasons for accumulating external debt in developing nations. It often treats external borrowing as a substitute for domestic debt without accounting for the asymmetric international financial architecture.
- Topic:
- Debt, Fiscal Policy, Sustainability, and IMF
- Political Geography:
- Global Focus
4. IMF Standby Agreements and Inequality: The Role of Informality
- Author:
- Ceyhun Elgin and Adem Elveren
- Publication Date:
- 01-2024
- Content Type:
- Working Paper
- Institution:
- Political Economy Research Institute (PERI), University of Massachusetts Amherst
- Abstract:
- In this paper we investigate the response of two inequality metrics to different IMF programs. To this end, we use a relatively large annual (unbalanced) cross-country panel dataset that includes the Gini index and the Estimated Household Income Inequality as the two relevant inequality metrics and covers the period from 1950 to 2016 in an annual basis for 159 countries. Our empirical analysis indicates that in countries where the informal sector size (as percentage of GDP) is relatively larger, the extent of income inequality increases after different IMF programs, but particularly so after standby arrangements. However, we also show that the opposite is true, when informal sector size is small, i.e., inequality declines after different IMF programs.
- Topic:
- Political Economy, Inequality, IMF, and Informal Economy
- Political Geography:
- Global Focus
5. The Buildup to a Crisis: Current Tensions and Future Scenarios for Tunisia
- Author:
- Ishac Diwan, Hachemi Alaya, and Hamza Meddeb
- Publication Date:
- 01-2024
- Content Type:
- Working Paper
- Institution:
- Carnegie Endowment for International Peace
- Abstract:
- Tunisia has been living beyond its means since 2011. External support and credit flowed into the country after the 2010–2011 uprising to support its nascent democracy, but this funding ended up largely financing a consumption boom that is unsustainable. To make matters worse, macroeconomic and political instability have begun to deeply harm the country’s productive capacity. The risk of a serious financial crisis has risen and corrective action is needed to ward it off. Tunisia’s political system should be able to avoid such catastrophic outcomes. Most reasonable people agree that the risks are rising and that something needs to be done. However, the disagreement is over magnitude, timing, and the type of program required to address the country’s problems. A hard economic adjustment risks unleashing a sociopolitical crisis. Not engaging in a correction, however, may well engender a future economic meltdown. Buying time is easiest politically, but it often means only postponing the crisis, leading to an even larger explosion. The challenge is to find the narrow path to escape a crisis by generating confidence in a national program that is politically acceptable and that can lead to a brighter future. Faced with these negative dynamics—the lack of sustainability and economic regression—economic agents might not merely adjust to the new normal. Instead, they might try to push the burden elsewhere in the economy and by so doing unleash more destructive forces. Think of society, with its networked organizations, as a hydraulic system. As pressure mounts, weaker parts of the network are at risk. Pushing pressure out from one part, instead of addressing the root cause of the problem, only leads to more pressure on other parts. Ultimately, the system will burst at its most vulnerable point. Typically, deterioration is not linear. Pressure builds up in invisible ways until the system explodes in a generalized crisis. There are several ways in which this can happen: foreign exchange reserves are used up slowly until a run takes place and the currency collapses; financing the state’s losses drains the private sector, reducing investment, until there is a collapse in growth; taxes are raised or services reduced, or both, leading to a social explosion; fiscal losses are financed with new loans (or arrears) until creditors dry up, and printing money remains the only solution, leading to hyperinflation; or banks keep lending to the state until depositors lose confidence in the banking sector and there is a bank run. What is destroyed will have to be rebuilt from scratch at great cost. It is in this context that Carnegie’s new Tunisia Sustainability Lab is beginning its work. The objective is twofold. First, the lab will monitor the risks ahead and alert the public about developments. It will do so by preparing a regular scorecard of Tunisia’s economic, financial, fiscal, external, and sociopolitical domains. Second, the lab will track proposals advanced by national and international parties on possible pathways to progress, reporting on and analyzing initiatives to avoid the worst of them. So far, several International Monetary Fund (IMF) proposals have been rejected by the Tunisian authorities. There are alternative proposals, some outlined by civil society actors, but they have not materialized. To support social dialogue, we will highlight the various initiatives and try to evaluate their impact. We will also develop scenarios to assess macroeconomic trends, which we will update over time.
- Topic:
- Crisis Management, Macroeconomics, IMF, and Economic Crisis
- Political Geography:
- North Africa and Tunisia
6. Restructuring sovereign debt: The need for a coordinated framework
- Author:
- Sean Hagan
- Publication Date:
- 05-2024
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics (PIIE)
- Abstract:
- When a sovereign's debt is unsustainable, all stakeholders—the sovereign, its official creditors, and most private creditors—share an interest in a restructuring that quickly restores sustainability. Notwithstanding this general alignment of interests, the current restructuring process is subject to delay and unpredictability. Concerns regarding intercreditor equity have been exacerbated by the "sequential" nature of the restructuring process, where official creditors are generally expected to commit to debt relief terms before private creditors. To speed up the restructuring process, this Policy Brief proposes that the restructuring of official claims and private claims proceed in a parallel yet coordinated manner. To address intercreditor equity concerns, a new contingency mechanism would be available to allow simultaneous decision making: Before one creditor group decides to accept an offer, these creditors would know what everyone else is being offered. Such a mechanism would not be mandatory—there may be circumstances where one group is prepared to move before the others. Such a "Coordinated Framework" will require greater information sharing, consistent with the types of transparency reforms that have been advanced by the International Monetary Fund.
- Topic:
- Emerging Markets, IMF, and Sovereign Debt
- Political Geography:
- Global Focus
7. Beyond Crises: The future of Special Drawing Rights as a source of development and climate finance
- Author:
- Didier Jacobs
- Publication Date:
- 06-2024
- Content Type:
- Policy Brief
- Institution:
- Oxfam Publishing
- Abstract:
- The allocation of Special Drawing Rights (SDRs) during the COVID-19 pandemic has generated considerable interest in using SDRs as a tool for development and climate finance. This policy brief argues that the monetary logic that underpins SDRs justifies regular allocations of at least $200 billion a year, and more than doubling the share of low-and middle-income countries. Once allocated, governments can use SDRs in multiple ways, including to fund some development or climate projects. The brief also discusses reforms to deepen the SDR system in the interest of all countries.
- Topic:
- Development, Climate Finance, Sustainable Development Goals, Economic Policy, and IMF
- Political Geography:
- Global Focus
8. Fragility, Conflict, and Violence at the World Bank—Recommendations for the Spring Meetings
- Author:
- Sarah Cliffe, Daniel Friedman, Betty N. Wainaina, and Céline Monnier
- Publication Date:
- 04-2024
- Content Type:
- Commentary and Analysis
- Institution:
- Center on International Cooperation (CIC)
- Abstract:
- The World Bank Governors meet at the International Monetary Fund (IMF)-World Bank (WB) Spring Meetings this week to discuss progress on the World Bank’s Evolution Roadmap. Much of this discussion will focus on financing, including commitments to the hybrid facility and the prospects for the upcoming International Development Association (IDA) replenishment. Equally important, however, is whether and how the World Bank continues to play a leading role in international support to countries affected by fragility, violence, and conflict. In this piece, the authors provide recommendations for the International Monetary Fund and World Bank Spring Meetings 2024, considering how the World Bank Evolution Roadmap addresses conflict, fragility, and violence; and the importance for the Bank to maintain its financial allocations to prevention in the upcoming International Development Association round of financing.
- Topic:
- Development, World Bank, Conflict, Violence, IMF, and Fragility
- Political Geography:
- Global Focus
9. Sri Lanka’s Bailout Blues: Elections in the Aftermath of Economic Collapse
- Author:
- International Crisis Group
- Publication Date:
- 09-2024
- Content Type:
- Special Report
- Institution:
- International Crisis Group
- Abstract:
- The economy is central in Sri Lanka’s presidential race, with many voters unhappy with austerity measures the incumbent has taken following International Monetary Fund recommendations. In the interest of stability, the winner should ensure that the belt tightening’s effects are more fairly distributed in society.
- Topic:
- Elections, Austerity, IMF, and Economic Crisis
- Political Geography:
- South Asia and Sri Lanka
10. Bretton Woods Institutions: 80 Years and Counting
- Author:
- Roman Marshavin
- Publication Date:
- 12-2024
- Content Type:
- Journal Article
- Journal:
- International Affairs: A Russian Journal of World Politics, Diplomacy and International Relations
- Institution:
- East View Information Services
- Abstract:
- ON JULY 22, 2024, the world marked the 80th anniversary of the conclusion of the Bretton Woods Conference, which led to the establishment of the International Monetary Fund and the World Bank. This milestone provides an opportune moment to assess the progress achieved and reflect on future challenges. In 1944, when these institutions were created, the world was vastly different. World War II was still ongoing, but the defeat of Nazism was within reach. Beginning in 1943, consultations were held in Moscow and Washington among the Allies of the anti-Hitler coalition – primarily the US, the UK, and the USSR – regarding the future world order, including its economic dimensions. The Soviet delegation, led by Deputy People’s Commissar for Foreign Trade Mikhail Stepanov, played an active role in these discussions, including the establishment of the UN and financial institutions. It is fair to say that without the USSR’s participation, the creation of the first-ever truly global financial institutions would have been impossible. Archival materials confirm the high level of preparation by Soviet experts and their diplomatic skills, which enabled them to defend several key positions for the country and reflect them in the final documents.
- Topic:
- World Bank, Institutions, IMF, BRICS, and Bretton Woods
- Political Geography:
- United Kingdom, Soviet Union, United States of America, and Global South