Economic Crises | Council on Foreign Relations

International Organizations

IMF Reform and the Ukraine Package

The debate over congressional passage of IMF reform has reached a critical juncture. The Senate Foreign Relations Committee today approved legislation providing loan guarantees for Ukraine and supporting sanctions, and the bill includes language implementing the long-delayed IMF reform. Assuming passage by the full Senate, the debate next moves to conference, where both sides will need to step up and negotiate in good faith. In her companion piece on this blog, Heidi Crebo-Rediker makes a compelling argument that there are significant geo-strategic benefits from this legislation. There are meaningful economic benefits as well that make it important to reach a deal. The economic case for IMF reform There is sometimes the mistaken view that the bill is only about expanding the lending of the IMF. It is not. The package would double IMF quotas, replacing temporary commitments made during the financial crisis (New Arrangements to Borrow, or NAB). But the overall level of Fund’s usable resources would increase only a very small amount, on the order of $15 billion (current unused lending capacity is around $400 billion), with increased resources coming primarily from the large emerging markets. Quotas will be larger, and arguably the Fund’s resources will be more permanent; lending programs might rise over time as a result. Ted Truman today has an excellent summary of the legislation and the Fund’s reform package. Does the Fund even need this level of resources? Desmond Lachman, for example, has three reasons why the Fund does not need the money: -Europe now has crisis mechanisms in place and so the Fund will not need to lend in such large amounts to periphery countries in the future; -there has been a backlash against the IMF in Europe, further reducing demand; and -large lending programs create moral hazard--countries don’t implement needed reforms--and debt overhangs. These are serious concerns but on balance I am not convinced. His first point relies on the establishment of the European Stability Mechanism (ESM) and the ECB’s ability to buy bonds (OMT). But the ESM is limited in size, with a very limited ability to directly recapitalize banks without burdening national balance sheets. I further doubt that the OMT will ever become operational. One can take the view that Europe would do the right thing in crisis and change their rules, but I see a European economic union that is far from complete and vulnerable to renewed crisis. I am more comfortable with the Fund involved and providing a backstop. I do agree there has been a backlash to recent Fund programs in Europe, and moral hazard (by both creditor and debtor) will always exist, but there will still be cases of national and systemic shocks where we will nonetheless find it necessary to provide extraordinary support and smooth the needed adjustment. The broader issue is that the reform package does much more that. The reform includes significant governance changes--representation and organizational--that addresses the concerns of rising economic powers who feel the IMF does not adequately reflect their voice and their contribution to the institution. This agreement provides them a greater voice at the Executive Board (primarily at the expense of the major European countries). By doing so, it ensures stronger support over the longer term for the Fund. While we can find much to criticize in past Fund programs, it remains the principal institution for international economic cooperation, and leverages U.S. economic and security interests. Why now—does Ukraine make the case? The current situation in Ukraine underscores the argument that a strong IMF advances U.S. interests. With the crisis deepening, the international community will look to the Fund for leadership, reform, and a lot of money. The IMF has the resources to lend to Ukraine, a point emphasized by my colleagues Dinah Walker and Benn Steil. Still, there are practical ways in which legislation would provide important support to Ukraine. This is the core of the argument made by the U.S. Treasury and other proponents of the legislation, and boils down to three points: Passage of the IMF quota reform will increase Ukraine’s access to emergency funding. I have argued in the past that the IMF should adopt as two-stage approach, rather than rushing to an ambitious IMF program that could destabilize Ukraine further. The first stage in this case is emergency, low- or non-conditional financing through the Fund’s Rapid Financing Instrument (RFI). With Ukraine’s current quota, that would be limited to around $1 billion. Under the new quota, it would rise to $1.6 billion. Is that material on its own? No. Is it potentially catalytic for a package of rapid-disbursing official aid that could total $5 to 6 billion? I believe so. The expansion of the quota would increase the amount of financing Ukraine could get under the Fund’s normal lending rules. With its new quota, Ukraine could borrow $18 billion over three years under normal limits. I suspect that, in the end, the amounts needed will be larger than this and thus the Fund’s exceptional access and systemic exemption clauses will need to be invoked to allow a large financing package to proceed. But there would certainly be a challenge to such an approach, particularly by emerging markets that believe that a double standard exists in lending to Europe. Rising economic powers feel that the IMF does not adequately reflect their voice and their contribution to the institution. Passing the reform now would strengthen support for an ambitious Fund role, which has benefits for Ukraine as well as for future crisis cases. Together, I see this as compelling evidence that approval of the IMF package would, in the words of Secretary Lew, “support the IMF’s capacity to lend additional resources to Ukraine, while also helping to preserve continued U.S. leadership within this important institution.” In the end, Congress will have to decide quickly, as we cannot allow this debate to derail the broader effort to support Ukraine at this time. But given the considerations above, this is well worth the effort.

Blog Post by Robert Kahn March 12, 2014 Macro and Markets
International Organizations

Lean In Congress--It’s Time to Show Leadership and Support the IMF

Today we are please to have the following guest post written by Heidi Crebo-Rediker, a CFR Senior Fellow. Prior to joining CFR, Heidi served as the State Department’s first chief economist. The urgent situation we now face to counter Russian aggression in Ukraine is a moment of truth for the United States. This where economic statecraft meets the cold hard power grab borne of an era we thought had passed. The world is looking for the United States to lead, to respond, and to take action. Russia clearly made the bet that the United States would not step up to this task. There are many tools in the economic toolbox that the United States and partners can employ to make this exercise in power a more painful one for Russia and a less painful one for Ukraine. All of these are on the table. Some are bilateral, other multilateral. The United States, both Congress and the administration, has been remarkably impressive in its swift determination to come together and lead in this crisis, and to lead with economic tools. But there is one big gap in our leadership at an institution sitting at the center of Ukraine’s lifeline to an economic future: The IMF. A support package for Ukraine under consideration in the Senate includes funds for loan guarantees, support for stolen asset recovery, technical assistance, support for enhanced security cooperation assistance in the region, and allowance for additional sanctions. It also includes language necessary to pass IMF quota reforms agreed in 2010 that guarantee the Fund has the resources and governance structure necessary to support Ukraine and other economic crises that can threaten United States national security. The strategic case to support IMF reform has not been adequately articulated by the foreign policy and national security community. But it is of critical importance to both those communities. Passing IMF quota reform is more than re-configuring shares and chairs or the transferring of funds from one account to another. Supporting this multilateral institution, an institution of our making for the purpose of being able to step up in situations just like this, is, in fact, strategic. It would demonstrate that the U.S. Congress understands this responsibility to lead at a time when many of our friends and allies are questioning our leadership in the world. World leaders do not understand why the U.S. Congress does not “get it”--that international economic power matters--and the institutions that sit at the center of international economic policy need to be robust, representative and legitimate. The proposed reforms are ones that the United States pushed for and negotiated, specifically to address these three perceived inadequacies to ensure we have a strong IMF in the 21st century. Excuses, such as the IMF has “no constituency” in Congress or can be traded for another political priority, ring hollow abroad and feed fears that the United States does not understand its role in the world. Leadership comes, and is expected, in many forms. The IMF is our core multilateral institution to support member countries in times of economic stress. Ukraine is now the poster child for this need. The United States remains the largest shareholder and retains the right of veto on the most important decisions, but this does not equal leadership. It’s time to lean in and get this done.

Blog Post by Heidi Crebo-Rediker March 12, 2014 Macro and Markets
International Organizations

Make or Break for IMF Reform

You may have missed it amidst all the headlines from Ukraine, Russia and Brussels, but the White House announcement on aid to Ukraine yesterday had an important commitment: "We are working with Congress to approve the 2010 IMF quota legislation, which would support the IMF’s capacity to lend additional resources to Ukraine, while also helping to preserve continued U.S. leadership within this important institution." I have been a strong supporter of IMF reform and was disappointed that the Congress did not approve the 2010 agreement when the budget was passed in February. The Administration now will try again, and its more than simply trying to take advantage of an opening provided by the crisis in Ukraine. It is exactly at times like these that a strong and reformed IMF becomes an essential component of the international community’s response to crisis. Passage of this legislation would send an important signal of U.S. commitment and leadership at a time when the Fund is at the front lines of the western support effort. Like the U.S. offer yesterday for $1 billion in loan guarantees, this commitment will have a multiplier effect on efforts to build a global support package for Ukraine. It is one of the single best things Congress can do to demonstrate its leadership.

Blog Post by Robert Kahn March 5, 2014 Macro and Markets

Europe and Eurasia

Restoring Financial Stability in the Eurozone: Lessons From the U.S. Financial Crisis

The European Stability Mechanism's (ESM) bank recapitalization instrument was designed to break the vicious circle tying financially weak eurozone governments to financially weak banks. It cannot, however, actually be used until the ESM board of governors amends the ESM treaty and Germany amends its own ESM implementation law forbidding direct recapitalization. These two actions should be taken before the European Central Bank (ECB) releases the results of its important ongoing eurozone bank stress tests; failure to sequence this correctly threatens to undermine the credibility of the tests, and thereby the ECB's efforts to stimulate the resumption of the flow of credit to eurozone businesses and households. It also risks reigniting fears among investors internationally that the most heavily indebted eurozone governments may see their finances deteriorate further owing to the need to commit yet more resources to bailing out their banks. The example of the 2009 U.S. bank stress tests suggests that having adequate funds precommitted to bank recapitalization is essential to their success, and that such success is itself critical to promoting economic recovery. The Problem Eurozone policymakers are struggling simultaneously to strengthen the balance sheets of banks and governments, but each is dragging down the other: banks facing large loan losses are increasing their already outsize exposure to eurozone sovereign debt, which falls in value as fears rise that the governments will be called on to bail them out. Each is therefore weakened by financial exposure to the other. One of the chief economic challenges facing the eurozone is that action taken by the ECB to stimulate lending to the private sector is being rendered ineffective by the weak condition of the banking sector. Cheaper ECB borrowing rates for banks have encouraged them to lend more to their governments, but not to businesses and consumers. Particularly in Italy, Spain, Portugal, and Greece, the ECB is now largely powerless to lower the interest rates that matter most to economic growth. European banks have been trying to repair their balance sheets by raising capital, but uncertainty over the quality of the assets they hold makes such capital expensive. Many eurozone bank stocks trade at less than book value, which means that investors believe the banks are overstating the value of their assets. Rather than raise capital, therefore, banks have resorted to cutting back on their lending. This further weakens the eurozone economy by reducing the supply of credit available to the private sector. The ECB's Flawed Solution The ECB hopes to restore market confidence in the financial condition of eurozone banks by conducting a "comprehensive assessment," including a stress test, of 130 of the largest ones, representing 85 percent of eurozone banking assets. The strong ones will be certified, while the weak ones will be obliged to recapitalize themselves. Eurozone authorities have conducted stress tests before, but with little to show for it. In 2011, the European Banking Authority (EBA) conducted what was promoted as a stringent test of eurozone bank health. Dexia, the large Franco-Belgian lender, passed with flying colors, only to require a government bailout just a few months later. The stress test assumed much lower losses on sovereign debt in the event of a restructuring than the market and ignored the risks arising from dependence on short-term funding—both of which were factors in precipitating Dexia's downfall. In 2012, Spain conducted a much-heralded test with similarly conspicuous flaws, among which were ignoring large bank exposures to risky foreign assets (such as Portuguese debt) and assuming an "adverse scenario" in which unemployment was no worse than it was when the test was conducted. The ECB aims to do better, but its planned test suffers from another flaw that plagued both the EBA and Spanish tests: no credible mechanism to ensure that banks judged to need more capital are actually able to secure it. The Council of the European Union has laid out three steps a bank must take, in turn, to raise capital if the ECB's assessment reveals a shortfall. First, tap the private markets. Second, if more capital is needed, apply for public funds from its home-state government. Third, if a shortfall remains after the national backstop has been exhausted, seek funds from the supranational European Stability Mechanism. The ESM was established in 2012 as a permanent successor to the European Financial Stability Fund, which had been created in 2010 to address the sovereign debt crisis. The problem with this rubric is that neither national governments nor the ESM is an effective backstop for institutions unable to raise sufficient capital in private markets. Securing capital from already highly indebted national governments increases their indebtedness and makes the debt that they have issued, and that their banks hold, less valuable, thereby increasing the banks' capital shortfall. The ESM, the capital provider of last resort, is currently only permitted to recapitalize banks indirectly, through loans to national governments. This provision does nothing to rectify the problem just identified—that if a government is already highly indebted it is not in a position to recapitalize banks with yet more borrowed funds. Since bank capital shortfalls identified by the ECB may not be rectifiable through the three mechanisms available, there is, in short, no reason why the markets should be comforted by the new testing regime. Weak banks are, in fact, apt to be weakened further by being revealed as such. Since investors know that the ECB knows this, they will also put no credence in declarations that a given bank has passed its tests and is therefore adequately capitalized. The Fix The problem is, fortunately, remediable. The ESM's board of governors has agreed on the main provisions of a reform to the ESM to allow direct bank recapitalization, rather than recapitalization through the sovereign, once the ECB has assumed supervisory responsibility for eurozone banks, which should happen in November. German law implementing the ESM expressly forbids the ESM from assuming direct bank financial risk; the November 2013 coalition agreement between the German CDU/CSU and SPD parties, however, included a provision supporting the ESM making available up to 60 billion euros in funds for bank recapitalization. Amendment of the law in the Bundestag later this year, therefore, is likely. German finance minister Wolfgang Schäuble has indicated that once this amendment is made he will be in a position to vote for the necessary reforms within the ESM board. The direct recapitalization instrument was created specifically to break the link between the weak balance sheets of governments and banks—a link that the methods of capital infusion currently available only serve to reinforce. The ECB stress test results should, therefore, be published only after the ESM has been legally empowered to recapitalize eurozone banks directly with sufficient funds. The experience of the U.S. government's treatment of the country's own weakened financial system in 2008 and 2009 supports this proposal. The U.S. federal banking supervisors' stress tests of 2009 were a success—indeed, a turning point in the financial crisis—owing to the market perception that they were tough and credible. The supervisors could, critically, afford to be tough, as funds from the Troubled Asset Relief Program (TARP) were by that time available through the Capital Assistance Program (CAP) to recapitalize banks deemed to have a shortfall. There was, therefore, no reason for the supervisors to give weak banks passing grades owing to fears that failing them might spook investors and counterparties: the market knew that government funds were available as the ultimate backstop. The CAP did not, in the end, actually provide any capital to banks following the stress tests; all those deemed needing capital were able to raise it privately (with the exception of the General Motors Acceptance Corporation, or GMAC, which was recapitalized through the Automotive Industry Financing Program). Knowledge that the CAP backstop was available was instrumental in encouraging private investors to step forward; German parliamentarians should take some comfort from this. Europe cannot afford the damage to market credibility that would be occasioned by flawed ECB bank stress tests. This could trigger a cut off of market funding both to financially suspect eurozone banks and to heavily debt-burdened governments faced with unaffordable new bailout liabilities, leading to renewed fears of a eurozone breakup. It is therefore vital that these tests be conducted in the same way as the U.S. stress tests were in 2009—with sufficient public funds made available in advance to recapitalize banks that fall short.

Policy Innovation Memorandum by Benn Steil and Dinah Walker February 24, 2014
International Organizations

Ukraine: Economy Matters

A deal that would end the violence in Ukraine appears to be holding. It would produce early elections, a return to the 2004 constitution, and a national unity government. It would also set the stage for an urgent western effort to provide financing supported by an IMF program. Good news on the politics, though, does not equate to good news on the economy. Last week I blogged on the issues that would need to be confronted if the West were to put together a package. If a government is put in place that can work with the IMF, the international community will need to move fast. Experience with crisis situations and failed states suggest that economic fundamentals deteriorate quickly if unaddressed. Capital flees, growth and trade slows dramatically, and tax receipts plunge as the authority of the state activity weakens. Exchange rate depreciation (see chart) and continued reserve loss exacerbates the risks. Ugly surprises appear on bank balance sheets. The longer a deal is put off, the larger the financing gap and the greater the challenge of filling it. S&P’s decision today to downgrade the sovereign on rising expectations of default highlights these risks. This suggests that the window may be short for an adjustment program that can restore confidence and market access, and is consistent with the financing available. Much depends on the IMF. How generous should a package be, and with what conditionality? In December, the IMF Board noted some achievements, but also regretted the authorities’ insufficient ownership, which undermined the program. Directors agreed that, "in view of Ukraine’s track record, arrangements with lower access and strong prior actions would be most appropriate." In plain speak, Ukraine has performed badly on past IMF programs, and a large financing program contingent on future economic reform promises is likely to fail again. Renewed funding could in fact could be counter productive. Of course, the counter argument for a large package is also easy to make. The new government is the best hope in some time for Ukraine, and deserves strong western support if there is to be a credible alternative to Russian financing and the strings attached. A large financing package from the IMF, with politically realistic conditionality, is the best hope to avoid default and chaos. This would mean financing a large fiscal deficit (which was 7.7 percent of GDP last year) and allowing a gradual adjustment of energy prices. This will be a tough package for the IMF (and some creditors worried about moral hazard) to accept. If the West goes in this direction, the Fund will want to see its program as catalyzing other support. I continue to see merit in a "Friends of Ukraine" effort, involving western governments and perhaps major Ukrainian investors and businesses. Market attention in coming weeks increasingly will focus on whether the Ukraine government will pay upcoming bond maturities. But even more important will be the speed and conditionality of the package the West offers. The contagion to other markets will likely depend on whether investors see this as a failure of the state and unique due to Russia’s role, or rather symptomatic of a broader increase in EM political risk. So far, market commentary has been balanced on this point. How the West responds will matter here too.

Blog Post by Robert Kahn February 21, 2014 Macro and Markets
Budget, Debt, and Deficits

Five Financial Questions for Ukraine

There is an interesting debate going on in Western capitals over financial support for Ukraine. The possibility of political change, coupled with Russia’s decision to suspend disbursements on its $12 billion financial package, has created an opening for meaningful economic reforms and renewed ties with global financial bodies. There are compelling political arguments for the West to respond with a financing program that makes it economically viable for Ukraine to choose the EU Association Agreement that it rejected last year. But the economics make a deal hard to put together. For now, the ball is in Ukraine’s court—tensions remain high and Western aid will require at a minimum a technocratic and reform oriented government be put in place. But should that happen, here are five economic questions on the table. How big is the hole? Ukraine has significant fiscal and external imbalances. For some time, and against the advice of the IMF, the government had tried to peg the exchange rate at just over 8 hryvnia against the dollar. Last week, with foreign exchange reserves plunging to around $17 billion (around 2 months of pre-crisis imports) and reports of significant deposit flight, the government abandoned the peg, imposed capital controls, and is now managing the exchange rate down. That is good for long-run competitiveness, but doesn’t preclude the need for substantial upfront financing. In December, the IMF identified a current account deficit of over 8 percent of GDP and a fiscal deficit of 7 ¾ percent of GDP. The underlying fundamentals look to have deteriorated since then. Optimists will argue that market access would return quickly with improved policies, but there would be significant risks to any lightly funded program. A financing gap on the order of $15 billion seems reasonable. Who pays? Western officials are understandably hesitant to be caught up in a bidding war with the Russians over aid, but discussions look underway to try and boost the package on offer to Ukraine. Until now, the reported European package is quite small, less than $1 billion. The EBRD should expand lending, but their exposure to Ukraine is already stretched. Some creativity may be possible using structures that encourage private sector cofinancing. One idea would be to expand the IFC’s A-B loan program, which provides a degree of seniority to cofinancing partners. In addition, the IFC’s focus on trade and energy efficiency--critical issues given strained relations with Russia--should easily be scalable. The US government should ask Congress to reprogram available funds (perhaps the "Chobani affair" at the Olympics makes that possible!). An IMF program is a must, but will it be a large access program that could be needed to fill the financing gap? That would be a tough call for the IMF, which in their last review criticized the government’s past ownership of the reform program and argued that “arrangements with lower access focused on critical areas may have better prospects.” Russia’s role? The financing need will depend on how Russia reacts, both in terms of trade sanctions and energy pricing (Russia is the dominant supplier of energy to Ukraine). To the extent that market access gains can be accelerated when the EU Association Agreement is signed, they should be. And Russia is in principle constrained from retaliation by its WTO obligations (the US and Europe should take a strong, united stand on this point). In the end, some understanding with the Russians seems required. A sustainable reduction in subsidies? The IMF rightly has taken a strong stance on the need for a substantial increase in energy prices, on the order of 40 percent, but how fast does that have to happen? In my view, the increase could be done gradually, as long as there is “stickiness” in that the increases are not reversed. It would help a lot if future increases had automaticity (e.g., indexed), a narrow safety net was constructed to protect the poor, and the policy had popular support. That’s a tough job, but worth the effort. Of course, a gradual adjustment requires more financing in the near term. Burden sharing? The toughest question, and most important for markets, is whether economic assistance will be conditioned on a private sector involvement (PSI). There is a hot debate now underway about whether the rules of the game for debt restructuring need to change, in cases where debt sustainability is uncertain. Ukraine’s government debt is not high by international standards—on the order of 45 percent of GDP. Instead, the case for a reprofiling of debt here rests on the old-fashioned need for financing. If there is a residual gap, will the Europeans up their contribution so external creditors can get paid? Should they? If, as noted above, there are good reasons for the IMF to limit its role, attention may turn to the debt. Over the next two years, Ukraine has around $2.1 billion in external bonds falling due, including $1 billion in June 2014. It might be attractive to push off payments, but care will need to be given to the precedents that could be set and to managing the risks of contagion. Tim Ash has a good analysis as to why the risk of default may be underestimated. Reprofiling that debt--perhaps with a menu of options including new money from "friends of Ukraine"--backed by meaningful reform would send a powerful message and could draw broad popular support.

Blog Post by Robert Kahn February 10, 2014 Macro and Markets

Monetary Policy

Global Economics Monthly: January 2014

After a year in which U.S. policy dominated the headlines, 2014 should have a more international flavor. Though not predictions, here are five economic themes that could make policymaker's lives difficult in 2014. 1. Catch a Falling Yen "Abenomics" has rejuvenated growth in Japan, but policymakers elsewhere continue to worry about what it means for the yen. Monetary stimulus—and more specifically the commitment to 2 percent inflation—remains the most powerful of the policy's "three arrows" (the others being fiscal and structural policies), and hopes for easier monetary policy were immediately reflected in a weaker yen. Since December 2012, the yen has fallen 17 percent against the dollar and 13 percent on a trade-weighted basis, with the current rate at 105 yen to the dollar. While it is possible that the upcoming wage round will provide a durable boost to incomes and inflation, there is growing concern that by mid-2014 the economy could begin to slow and deflationary pressures reemerge. Last month I argued that the Bank of Japan would "do whatever it took" to achieve its inflation target, which in this case means doubling down on its quantitative easing program. Where would that take the yen? A yen-to-dollar rate of 120 or 130 would cause significant stress in finance ministries around the world, given concerns about growth and exchange-rate instability. In addition to a rise in protectionist pressures, the resultant deflationary pulse among Japan's trading partners would intensify incentives for competitive depreciations. For U.S. policymakers, pressure is mounting from Congress to include exchange rate legislation as part of any trade agreement with Asia (the Trans-Pacific Partnership) or Europe (the Transatlantic Trade and Investment Partnership). A sharp yen decline will intensify this debate. The issue is no less fraught in emerging markets, which are already buffeted by capital outflows over concerns about Federal Reserve tightening. Pressure to impose capital controls or engage in competitive depreciations is likely to mount. In 2013, the Group of Seven (G7) and Group of Twenty (G20) had a simple mantra: policies should be aimed at domestic objectives, and governments should not purchase foreign instruments (no direct foreign-exchange intervention). It is possible that 2014 will test that consensus. 2. Debalancing and Deleveraging In the economic context, "rebalancing" is not a pivot in U.S. foreign policy to Asia (at least not explicitly). Rather, it reflects U.S.-led efforts since the fiscal crisis in 2008 to encourage policies that will reduce global economic imbalances, most notably reflected in large current account surpluses and reserve accumulation. After several years of shrinking imbalances, 2014 looks to be the year that external trade surpluses for China and Germany begin to widen again (see Figure 1). This change reflects growth differentials, in part, and in normal times could be addressed through expansionary fiscal policy or an easing of financial conditions by central banks. But these are not normal times. China's early steps toward market liberalization will be tempered by the need to address the challenge of reining in its shadow banking system, and the risks to imports and growth remain on the downside. Meanwhile, Germany benefits from a euro that, while too strong for periphery countries struggling to restore competitiveness, is much weaker than it would be if Germany were not in a monetary union. A muted recovery in the rest of Europe is unlikely to provide a meaningful counterweight. The region continues to deleverage, and tighter credit conditions in the European periphery are likely to provide a substantial headwind to growth. In this context, concerns about global growth may intensify the rebalancing debate. Figure 1. German Trade Surpluses (in billions of euros) Sources: Haver and Bank of America Merrill Lynch Global Research estimates. 3. Argentina Fallout Argentina's standoff with its private creditors is now in front of the U.S. Supreme Court and may not be decided until 2015. Along with an ongoing reassessment of Greece's 2012 restructuring, the dispute has triggered a broader debate over whether the rules of the game for sovereign debt need to change. Some law and economics experts have argued that a decision against Argentina will, by strengthening creditor rights, swing the pendulum excessively toward creditors at a time when political and economic factors already make for restructurings that are "too little, too late." These critics contend that the process for restructuring sovereign debt—primarily through market-based debt exchanges—needs to change to make it easier to get deals done and prevent holdouts from blocking them. These changes could include new language in bond contracts, as well as changes to when and under what conditions the International Monetary Fund (IMF) lends to countries in distress. I am not convinced that the current system needs fixing; however, a full-throated official sector debate in 2014, combined with growing pressure on European policymakers to address official debt relief (OSI) for over-indebted periphery countries, has the potential to create tremendous uncertainty in markets, raising the risk of early runs on countries that are seen as candidates for official support. 4. Secular Stagnation, Quantitative Easing, and Inflation Targeting Larry Summers created a stir in November with his suggestion that the United States faces long-term secular stagnation. The idea that the weak recovery reflects structural factors—a global savings glut, investment uncertainty, or low productivity—suggests that real interest rates have to fall well below zero to produce an adequate recovery. In today's low inflation, recessionary environment, that is a tough challenge for central banks that cannot lower nominal interest rates below zero. If interest rates remain too high for an extended period, the resultant reduction in investment and increased unemployment has long-term effects: cyclical becomes structural. Fiscal policy can effectively boost demand in these situations—a point Summers elaborates on in the Washington Post. In the current U.S. policy environment, fiscal policy is hamstrung and monetary policy will have to carry the burden of supporting demand and reducing real interest rates. This could be done through higher inflation, which would require a change to current central banking orthodoxy (that inflation should be held to around 2 percent). Of course, central bank policy works through channels other than interest rates, including the exchange rate, equity, and housing prices. The argument also has been advanced by Paul Krugman, among others, and traces back to Alvin Hanson's "stagnation thesis." It contradicts the analysis of Ken Rogoff and Carmen Reinhart, among others, whose work identifies headwinds from a crisis that should recede over time. Somewhat perversely, these economists are looking at the United States at a time when the U.S. economy looks set to grow above trend this year. I find the case for secular stagnation more convincing for Europe. But the bottom line for Summers: one cannot assume a return to above-trend growth, and central banks may need to rethink how policy can and should be targeted. 5. Elections and Investors My colleague Jim Lindsay, CFR's director of studies, has highlighted elections to watch in 2014. Virtually all major emerging market governments face voters in 2014, including the so-called fragile five of Turkey (March and August), Indonesia (April), South Africa (April-June), India (May/June), and Brazil (October). Add in Colombia and Hungary, and 2015 elections in Ukraine and Argentina, and you have upcoming elections in nearly all of the major emerging markets. With U.S. fiscal and monetary policy on a steadier course following the recent budget deal and the Federal Reserve announcement that it would reduce (taper) its pace of government bond purchases, domestic factors are likely to again become the major drivers of market volatility. All of which could make for an interesting year. And it is even more important that there is strong leadership in the international economic arena, including in the United States, where critical Treasury positions remain vacant. Looking Ahead: Kahn's take on the news on the horizon How Much Taper? Minutes from the Fed's December meeting will provide needed policy insight as Janet Yellen takes the reins. Europe Quantitative Easing The European Central Bank is expected to resist pressures to ease monetary policy in January, but odds are rising for more moves during the first quarter. Ultimately, qualitative easing will be necessary to produce above-trend growth. Emerging Markets Turmoil Political turmoil in Thailand and Ukraine, and ongoing concern about capital outflows, appear likely to provide a difficult start to the year in emerging markets.

Report by Robert Kahn January 6, 2014
Thailand

Will There Be Another Asian Economic Meltdown?

Since the middle of this summer, emerging markets, particularly in Asia, have witnessed massive sell-offs of their bonds, enormous slides in their stock markets, and investors dumping their currencies as fast as they can. Many Asian and foreign analysts of Asian nations now worry that the easy credit masked huge problems in the foundations of emerging economies, and that Asia could witness an economic and financial crisis similar to the devastating meltdown that crushed the region in the late 1990s. This time, such a crisis would be even tougher for the world to withstand: emerging markets are far larger than they were 15 years ago, and a crisis in Asia could take down the entire international economy. Read more of my piece on the emerging markets crisis and the potential global economic recession here.

Blog Post by Joshua Kurlantzick October 15, 2013 Asia Unbound
International Organizations

Guest Post: The Year of Womenomics

Today we are please to have the following guest post written by Heidi Crebo-Rediker, a CFR Senior Fellow. Prior to joining CFR, Heidi served as the State Department’s first chief economist. It was likely just a coincidence that President Obama picked the week of the IMF Annual Meetings in Washington to announce his selection of Janet Yellen as the next chair of the Federal Reserve. But the choice of Ms. Yellen as the first woman to serve in what has become the most important position in the global economy underlies one of the major themes of this year’s gathering of the global financial policy-making elite. While it is not new for the IMF meetings to focus on how to spur and sustain balanced and inclusive growth, what is different is that this year, in addition to the more traditional prescriptions, the IMF has something to say about an answer that is right in front of us: women. Compelling work from the IMF, and sister institutions like the World Bank and OECD, shows that increasing women in the workforce drives economic growth. The OECD estimates if their member countries saw full convergence of men and women in their labor forces, these countries would benefit from an overall increase of 12 percent in GDP within the next 20 years. IMF management, staff and the Executive Board got a serious boost to advance the agenda of women as a driver of growth, or “Womenomics”, from none other than Secretary Hillary Clinton last week. She addressed crowds of hundreds at the IMF’s headquarters, relaying her experience on women’s engagement in the global economy in a conversation with Christine Lagarde. Clinton praised the work already done by the IMF, but encouraged deeper engagement on the issue of women as a driver of growth with all member countries, integrating gender into the IMF’s mainstream business. Secretary Clinton’s timing was perfect. The IMF is considering how and where it can most effectively integrate gender into macro-economic assessment. A new IMF publication Women, Work and the Economy: Macroeconomic Gains from Gender Equity, suggests a number of ways the IMF could advance gender-driven growth consistent with the rest of the good work they do. The Fund should take this opportunity to go the next step: to design the best policies and practices, create the metrics for success and hold countries to account in its annual assessments---for all IMF member countries. And the IMF is just the “man” for the job. Addressing barriers to women’s labor force participation is a natural extension of the dialog the IMF already has with member countries on inclusive growth, fiscal and budget issues and labor markets. That means the IMF is well placed to systematically ensure that inclusive growth includes women, and discussion of women’s economic participation becomes a standard and serious component of economic assessment, from tax policy, to financial policy, to spending policy, and more. Japan provides an interesting case for Womenomics---and its leadership is now embracing a gender-driven growth agenda. Japan’s labor force has fewer women participating in it than most of its OECD peers. When Prime Minister Abe took the podium at the recent UN General Assembly, he championed “Womenomics” as his next move to revitalize Japan’s economy. Given the prominence placed on the world stage---Abe is taking this particular arrow of Abenomics seriously. Abe told the UN audience that this is no longer a matter of choice. With the demographic challenge Japan faces in the decades ahead, the Prime Minister is right. He aims to create the right conditions to boost the percentage of women in the labor force from 68% to 73% by 2020, just in time for the Tokyo Olympics. This will not be easy. But with some good policy choices and decent implementation, Japan has the opportunity to take an OECD lagging indicator and turn it into a force for renewal. “Womenomics” in Japan was helped along the way by the IMF. Madame Lagarde herself weighed in during her visits to Tokyo, personally advocating on this issue. But there are many other countries that can benefit from the same engagement Japan has seen. While gender-driven policy advice is not yet considered standard fare from the IMF, it is certainly becoming more so these days as growth challenges loom large. Much good work has been done to further objectives of women at home and around the world, but there is more to do. Ultimately, the case will be made, and won, when leading institutions like the IMF spearhead, and more leaders like Prime Minister Abe embrace, the right policies to encourage equal opportunity for women in the economy.

Blog Post by Heidi Crebo-Rediker October 11, 2013 Macro and Markets
Budget, Debt, and Deficits

Bank-Fund Meetings: It’s Mainly Fiscal

The Annual Meetings of the World Bank and IMF this week look far different than expected a few weeks ago. Here are five thoughts on what to look for. 1. The dominant issue will be the U.S. fiscal mess as the central global risk and the primary driver of financial markets. Outside the United States, there is little understanding why we are engaged in such a destructive debate with so much at stake. Uncertainty about what comes next will hang over virtually all policy discussions. 2. U.S. policy makers will be sidelined, both because the crisis will force them to take a low profile in the official meetings, and because the government shutdown will restrict their public appearances outside of the IMF meetings. (The conferences hosted by private financial institutions on the margins of the meetings are as important as the official meetings for getting a message out). The lesson that our fiscal crisis undermines our ability to project our values and policies abroad will be on vivid display this weekend. 3. The IMF economic outlook, released yesterday, stresses the risks associated with low export growth and the Fed’s exit from unorthodox policies. Emerging markets in particular will complain about sudden stops in capital flows due to expectations of Fed tapering (they also complained about hot money inflows when industrial country central banks were launching these policies). But while there will be sympathetic calls for close coordination of policy, emerging market policymakers will come away empty-handed. Central bankers see their policies as supportive for growth and appropriate on domestic grounds. The message back to countries will be to move more aggressively to fix their own imbalances and let their exchange rates adjust as needed. 4. I recently examined the case for a strengthening of the global liquidity arrangements through an expanded network of swaps. I don’t expect any new deliverables this weekend, but there should be discussions about whether the Fund can and should do more to protect countries from volatile capital flows. 5. Europe will get a pass. There is little confidence outside European capitals that their policies can restore growth, produce sustainable debt levels in the periphery, or reduce punishingly high unemployment rates. In calmer times, there would be a vigorous debate over whether Europe is on the right track. Not this week.

Blog Post by Robert Kahn October 10, 2013 Macro and Markets
International Organizations

Jackson Hole: Future Worries

This year’s Jackson Hole Federal Reserve conference was a decidedly low-key affair given Ben Bernanke’s absence (and Janet Yellen’s successful effort to not make news). Nonetheless, there look to have been a few takeaways of note. We’re ready, aren’t we? Central bankers at the conference went to great length to convince markets (and themselves) that they were ready for the possible market turbulence that could follow the Fed reducing asset purchases (tapering). A few Fed governors did comment on the timing of tapering, repeating known positions. Atlanta Fed president Dennis Lockhart said that he would support tapering in September if the expansion held up, while St. Louis Fed president James Bullard wants to see more data before making a decision. I personally am not convinced that small taper in September would unsettle markets (it’s mostly priced in) but until it happens the U.S. and global implications of the move will worry policymakers. There were the usual calls for global coordination around the exit from these policies, but besides a paragraph in the upcoming G20 Communique I am hard pressed to think of how policy would change in practice. Have we lost confidence in asset purchases? Not yet. A paper by Arvind Krishnamurthy and Annette Vissing-Jorgensen on the effects of asset purchases and sales drew significant attention. They argued that asset purchases–specifically US Treasury purchases–are contributing relatively little to the current expansion (MBS purchases pack more punch). In particular, positive effects on the economy from reducing interest rate premia in US Treasury markets are oversold when such risk premia are already negative. Consequently, they argue, Treasury sales will have little effect on markets. Their paper apparently drew a lot of pushback, on both analytic and empirical grounds, and doesn’t appear to have changed minds. But it is consistent with a growing view that the effects of purchases alone are diminishing, and a greater focus on the importance of communication/forward guidance alone or in conjunction with purchases. Is this 1997? Concerns about emerging markets were front and center. After much complaint over the past few years about quantitative easing, the irony of emerging market central banks wringing their hands about what happens when the Fed exits was not lost on the conference. It is right though to be concerned. In a number of countries--notably India, Indonesia, South Africa, Turkey, and Brazil--large current account deficits and weak macro policies have created significant risks of deleveraging and capital outflows that are rattling emerging market investors and policymakers alike. But are we on the cusp of a major emerging market crisis? Some argued yes, notably Carmen Reinhart: “It could get very ugly…Emerging markets had a capital flow bonanza lasting several years, the golden boom years, and the probability of a banking crisis, the probability of a currency crash, the probability of a default, all increase afterward.” This fear is prospective, not an assessment of events so far, a point made by New York Fed staffer Terrence Checki: “The sell-off, including renewed pressure in recent days, remains within the range of other sell-offs which the emerging markets have successfully weathered in recent years.” Central bankers from emerging markets called for more aggressive efforts to avoid crisis, but beyond IMF programs and macroprudential controls there didn’t seem to be any big ideas. The conference proved far less significant as a news maker and market mover than in past years, but as a barometer of policymaker’s concern and anxiety it still has something to tell us. Given the range of global risks, political and economic, that we are likely to face this fall, they are right to be concerned.

Blog Post by Robert Kahn August 26, 2013 Macro and Markets
United States

Quarterly Update: The U.S. Economic Recovery in Historical Context

How does the current recovery, which, according to the National Bureau of Economic Research, officially started in June 2009, compare to those of the past? The following charts provide a series of answers, plotting current indicators (in red) against the average of all prior post–World War II recoveries (in blue). The x-axis shows the number of months since the end of the recession. The dotted lines are composites of prior recoveries representing the weakest and strongest experiences of the past. This recovery chart book replaces the cycle chart book, which plotted the downturn as well as the recovery. Those interested in the previous presentation can view it here. The economic expansion following the 2008 recession has been the weakest of the post–World War II era. Four years after the start of the recovery, GDP has risen about half as much as in the average post–World War II era recovery. The federal budget deficit, which was larger than in any other post–World War II era recovery for much of the past four years, has shrunk rapidly in recent months and is now smaller than in the recoveries which began in 1980 and 1982. House prices rose again in the second quarter of 2013 but remain 5 percent lower than they were at the start of the recovery (updated 11/19/2013). Household debt remained essentially unchanged in the second quarter of 2013 and remains below its June 2009 level (updated 11/19/2013). The current recovery was initially stronger than the recovery from the 1980 recession, which was interrupted by another recession in 1981. However, at this point, the current expansion is the weakest in the post–World War II era. Four years after the start of the economic recovery, GDP is only 9 percent higher than it was when the recovery officially began. In the average post–World War II recovery, GDP is 17 percent higher at this point. The Federal Housing Finance Agency's all-transactions home price index, which is used in the accompanying graph, increased for the fourth consecutive quarter in the second quarter of 2013. However, the index remains 15 percent below the peak reached in the first quarter of 2007 and is 5 percent lower than when the recovery began. (Updated with second quarter data on 11/19/13.) Household debt remained essentially unchanged in the second quarter of 2013 and remains 3.3 percent below its June 2009 level. In every previous postwar recovery, the stock of household debt has risen as the recovery has begun. (Updated with second quarter data on 11/19/13.) Job losses continued throughout the first eight months of the recovery. Payrolls have increased for the past thirty-four consecutive months, adding 6.1 million jobs to the economy. However, there are still 2 million fewer Americans on nonfarm payrolls than there were at the start of 2008. Because of the depth of the recent recession, one might expect stronger-than-average improvement in industrial production. Despite the predicted snapback, the increase in industrial production during this recovery has been fairly typical of postwar recoveries. Capacity in manufacturing, mining, and electric and gas utilities usually grows steadily from the start of a recovery; however, during the current recovery, investment was initially so slow that capacity declined. Since the start of 2011, this trend has reversed itself and industrial capacity has steadily risen. Capacity is now 1.7 percent higher than it was at the start of the recovery. The federal deficit was much larger at the start of and throughout most of this recovery than it was in any other post–World War II era recovery. However, the deficit has shrunk rapidly in recent months and is now smaller than it was following the recessions of 1980 and 1981. The deficit has declined from over 9 percent of GDP at the start of the recovery to 4 percent of GDP as of June. Explore Our Other Chart Books Foreign Ownership of U.S. Assets Foreign Exchange Reserves in the BRICs Trends in U.S. Military Spending Economic Downturn

Report by Dinah Walker August 22, 2013 Greenberg Center for Geoeconomic Studies
Asia

Is Southeast Asia Headed for a Repeat of the Late 1990s Financial Crisis?

Quarterly growth reports released in recent weeks for the major economies in Southeast Asia have been pretty grim. This week, Thailand surprised investors and analysts by reporting that its economy had contracted in the second quarter of 2013, falling into a technical recession. In Indonesia, second quarter growth came in below forecasts, while in Taiwan, although the second quarter produced strong growth, the government reduced its forecast for 2013 overall. Meanwhile, Malaysia’s economy grew at a slower-than-expected rate in the second quarter, and the government slashed its forecast for 2013 as a whole. In many of these countries, massive current account deficits and the end of cheap credit are to blame for the slowdowns. Some financial analysts worry that the region—including not only Southeast Asia but also China—is repeating some of the mistakes that led to the disastrous 1990s Asian financial crisis. Cheap credit in nearly every major Southeast Asian economy (and in China) has led to booms, often wasteful, in-housing construction; many countries in the region now have unprecedentedly high current account deficits and debt/GDP ratios. A recent article in the Financial Times suggested that, if all the books were opened, China would have total debts worth more than 200 percent of gross domestic product. Some leaders in Thailand, Malaysia, Indonesia and, one suspects, in China, worry that as easy credit is less available many of these countries are going to face currency crunches similar to that which launched the Asian financial crisis in 1997 as the Thai baht’s peg to the U.S. dollar collapsed. Such doom-mongering, though, seems to me overstated, at least at this point. All of these countries have been through one Asian financial crisis, and have learned some important lessons from it, including building up much larger piles of foreign currency reserves, creating the Chiang Mai currency swap initiative as added protection, and launching close informal cooperation among central bankers and finance ministers in the region, so that any currency crunches do not catch other countries unaware. And as the FT notes, Southeast Asia’s bond markets have become more mature, with greater long-term borrowing, making it less likely for credit to dry up for any Southeast Asian nation all of a sudden. All this doesn’t mean the region’s leaders are free from worry, but expecting a return of 1997 is, I think, too alarmist.

Blog Post by Joshua Kurlantzick August 21, 2013 Asia Unbound
China

Global Economics Monthly: August 2013

Bottom Line: Growth is slowing in China, which could constrain the pace of rebalancing and policy reform. China's long-term growth could disappoint markets. If you are an English football fan, you may have noticed an odd occurrence this preseason: the big teams are all touring in Asia. Booming shirt sales and rising viewership apparently are sufficient evidence that the Asian consumer is the future. Rebalancing is here. For a more nuanced assessment of China's rebalancing and future growth prospects, the International Monetary Fund's (IMF) annual review of the Chinese economy is worthwhile reading. It raises several questions about growth and reform, the tradeoffs between the two, and the financial pressures ahead, which the news coverage failed to notice. Good Slowdowns and Bad Slowdowns Everyone agrees China's economy is slowing, but why it is slowing matters. The IMF's view is that the underlying momentum of the economy is strong. It forecasts growth this year of 7.75 percent, above the government's own 7.5 percent forecast, though the IMF acknowledges the risks are on the downside. Strong credit growth and signs of stabilization in investment are expected to support activity, while weak external demand, financial market uncertainties, and spillovers from the recent weakness in economic activity could weigh on growth. If the IMF is correct, there is room for a more aggressive reform agenda—even if such reform is likely to slow growth in the short term. These reforms would aim to contain financial risks while transitioning the country to a "more consumer-based, inclusive, and environmentally friendly growth path." Conversely, many market participants see growth slowing more sharply, with forecasts for this year and next in the 6 percent range and downside scenarios of below 5 percent. At the same time, forecasts also broadly assume that there is a floor below which the government is not prepared to allow growth to fall. The government could try and protect this floor through easier fiscal policy, along the lines of the spending and tax incentives announced in mid-July. But the scope for such policies is limited, given the ongoing pressures to rationalize spending and financial policies. (Though, as shown in Chart 1, the recent tightening of credit conditions has proved temporary.) Consequently, weak growth dynamics could lead the government, under pressure from anti-reform critics, to slow the pace of reform. I wonder if the focus on growth is warranted. Domestic commentary tends to highlight jobs, household income, and other indicators besides growth as driving policy. Further, to the extent that Beijing thinks economic reform is central to its ten-year mandate, weak growth could be a justification for faster, not slower reform, in order to bring forward the consumer benefits of a rebalanced economy. But the general concern throughout the IMF report seems to be that low growth should not be an excuse for delaying reform. Figure 1. Chinese Shibor, Deposit, and Lending Rates Source: shibor.org. Certainly some structural reforms do boost growth. Opening markets spurs investment, and rebalancing should support the expansion of consumer-goods industries. But the IMF acknowledges that in China's case the most important reforms are likely to be a drag on growth in the near term. The IMF's policy prescription involves reining in credit growth and other measures to limit excessive risk-taking in the financial sector; allowing greater room for market forces (such as liberalizing interest rates, which will lead to higher borrowing costs for many firms); revamping local government and state-enterprise spending and investment; and eventually moving to a more market-oriented exchange rate. In the long term, these reforms promise major benefits. In the short term, however, this package of measures slows investment and growth, and brings long-simmering financial imbalances to the surface. Given such uncertainties, it is understandable if Chinese authorities are slower to act than the IMF hopes. The Two Financial Crises? Much of the focus recently has been on the prospects of a near-term financial crisis arising from years of overinvestment in low-return projects. In this regard, the Chinese government has to do two things: fix the incentives and put in place a new financial architecture, and deal with the overhang of bad debts and insolvency. Credit booms and busts often involve costly cleanups, both in terms of fiscal policy and lost growth. Figure 2. Relationship Between Fiscal Cost of Crisis and GDP Growth Source: International Monetary Fund, People's Republic of China: 2013 Article IV Consultation. The IMF report touches on a number of important debates regarding the right sequencing of liberalization. One issue being hotly debated now is whether the government, in general, and the central bank, specifically, have gotten the sequencing of liberalization wrong by prioritizing capital-account liberalization. While the report endorses the idea that opening to international capital flows can be an important anchor and discipline on markets, it also acknowledges that given significant domestic distortions, opening prematurely can worsen the misallocation of capital. To its credit, the IMF report also focuses on the longer-term growth prospects and the need for rebalancing over time. One implication of efforts to rebalance is that the pattern of returns across the economy needs to change, creating winners and losers. The return on capital will fall, and the return on labor will rise. This will mean additional losses and additional financial stress during the transition. And this, in turn, implies the possibility of a second financial crisis along the path to rebalancing. The prospect that problems today may not manifest for many years underscores the importance of not losing focus on the longer-term challenges facing China. Heading to 6 Percent? The majority of market participants, save for those predicting a collapse in China, are expecting that Beijing will aim for 7 percent growth in the medium term. Advocates of this growth optimism will find little comfort in the IMF report. One element of the growth outlook is adverse demographics. As shown in Chart 3, China is on the verge of a sizeable demographic shift due to a shrinking workforce and aging population. In the next twenty years, a sharp increase in retirement-age workers, coupled with a decline in young workers as a result of the one-child policy, will both reduce labor-force growth and increase the strains on the safety net. According to one report, China's elderly dependency ratio—the number of people over 64 as a share of the working population—is set to rise from around 11 percent today to around 24 percent in 2030. Figure 3. Youth and Old-Age Dependency Ratio Comparison Source: "China's Demography and Its Implications," by Lee, Xu and Syed (IMF Working Paper). The IMF raises the possibility that a shrinking labor force could create a profound shift in labor-market dynamics known in the economics world as a "Lewis turning point," where surplus labor dries up and causes a surge in relative wages. While this is good for the rebalancing story (though many of these near-retirement workers will maintain high savings rates in coming years), it means a smaller contribution to overall growth from labor-force growth. In the IMF's reform scenario, investment also slows over time as the economy becomes more consumption-oriented. In the context of declining growth in labor and capital, growth will fall sharply absent a substantial upturn in productivity. Here the IMF offers a mixed message. On the one hand, it argues that the long-run productivity effects of a strong reform effort could be profound. But the IMF also acknowledges it will take time. In sum, these risks look tilted to a period of lower growth, not unlike the long-term growth forecasts prepared by the Organization for Economic Cooperation and Development (OECD) and private-market analysts. China's ability to finance investment is facing increasing constraints due to shrinking resources and becoming more reliant on liquidity expansion, with associated risks of financial instability and asset bubbles. Altogether, the IMF report is most consistent with the view that Chinese growth will slow steadily in coming years, that reform will be slow, and predictions of a Chinese rise need to be tempered. At the same time, China remains central to regional and global supply chains. Whether China takes a risk with an ambitious reform effort and rebalancing effort, or slows its transition in an effort to protect growth, will tell us a lot about the outlook for global growth. Looking Ahead: Kahn's take on the news on the horizon Fiscal Cliff Returns History suggests a deal will be reached, but the showdown over government funding and the debt limit is likely to be messier than anticipated. Argentina Debt Ruling A court ruling, expected soon, is likely to be negative for the government. Greek Financing Gap Soars The IMF estimates an 11 billion euro gap, ensuring a showdown post German elections.

Report by Robert Kahn August 5, 2013
Egypt

Gulf Cash Stabilizes Egypt, for Now

As Egypt’s political crisis deepens, its economy has been stabilized by a cash infusion from the oil-rich Persian Gulf. Economist Farouk Soussa outlines the limited options facing Egypt’s interim government.

Interview with Farouk Soussa and Mohammed Aly Sergie July 31, 2013