IMF releases

IMF new releases included:

Surveys

IMF Set to Lend Ukraine $16.5 Billion, In Talks With Hungary
The IMF says it has reached a tentative agreement with Ukraine to lend the eastern European country $16.5 billion to help it combat a series of economic problems tied to the international financial turmoil and announced broad agreement with Hungary on a set of policies designed to bolster near-term stability.

Latin America, Caribbean Grapple With Global Crisis
The outlook for the Latin America and Caribbean region is increasingly clouded by the global financial turmoil and policymakers face tough choices, the IMF says in its latest regional outlook.

Foreign Currency Borrowing More Risky for Eastern Europe
Europe's emerging markets are increasingly exposed to currency risk, heightening these countries' exposure to the banking crisis that is currently sweeping across Europe, and raising the alarm among those concerned with financial stability.

Current Crisis Highlights Importance of Data
In an interview, the IMF's new Statistics Director Adelheid Burgi-Schmelz speaks about how statistics can shed further light on the current financial crisis, the relevance in measuring national wealth, and what she views as her priorities for the department.

IMF, EU, and World Bank Line Up $25 Billion for Hungary

The IMF, the European Union, and the World Bank announce a joint financing package for Hungary totaling $25 billion to bolster its economy, hit by recent financial market turbulence. The announcement followed earlier outline agreements on IMF financing for Iceland and Ukraine.

IMF to Launch New Facility for Emerging Markets Hit by Crisis
The IMF says it will create a new short-term lending facility to channel funds quickly to emerging markets that have a strong track record, but that need rapid help during the current financial crisis to get them through temporary liquidity problems.

Working Papers

Trade Effects of Currency Unions: Do Economic Dissimilarities Matter?
Author/Editor: Albertin, Giorgia
Summary: This paper provides a general equilibrium analysis of the trade effects of the formation of a currency union, and of its subsequent enlargement to include an economically dissimilar country. Furthermore, it investigates how economic dissimilarities among countries affect the magnitude of the trade effects fostered by a common currency. We show that sharing a common currency enhances the volume of bilateral trade among countries. However, the more economically dissimilar is an accession country, compared to the original members of a currency union, the smaller are the gains in trade that would follow the enlargement of a currency union.


Banks' Precautionary Capital and Credit Crunches
Author/Editor: Valencia, Fabian
Summary: Periods of banking distress are often followed by sizable and long-lasting contractions in bank credit. They may be explained by a declined demand by financially impaired borrowers (the conventional financial accelerator) or by lower supply by capital-constrained banks, a "credit crunch". This paper develops a bank model to study credit crunches and their real effects. In this model, banks maintain a precautionary level of capital that serves as a smoothing mechanism to avert disruptions in the supply of credit when hit by small shocks. However, for larger shocks, highly persistent credit crunches may arise even when the impulse is a one time, non-serially correlated event. From a policy perspective, the model justifies the use of public funds to recapitalize banks following a significant deterioration in their capital position.

Writing Clearly: ECB's Monetary Policy Communication
Author/Editor: Bulir, Ales; Cihák, Martin; Smídková, Katerina
Summary: The paper presents a methodology for measuring the clarity of central bank communication, illustrating it with the case of the European Central Bank (ECB) in 1999-2007. The analysis identifies the ECB's written communication as clear about 95 percent of instances, which is comparable to, or even better than, other central banks for which a similar analysis is available. We also find that the additional information contained in the ECB's Monthly Bulletins helps to improve communication clarity compared to ECB's press releases. In particular, the Bulletins contain useful clarifying information on individual inflation factors and the overall forecast risk; in contrast, the bulletin's communication on monetary shocks has a negative, albeit small, impact on clarity.

The Use of Blanket Guarantees in Banking Crises
Author/Editor: Laeven, Luc; Valencia, Fabian
Summary: In episodes of significant banking distress or perceived systemic risk to the financial system, policymakers have often opted for issuing blanket guarantees on bank liabilities to stop or avoid widespread bank runs. In theory, blanket guarantees can prevent bank runs if they are credible. However, guarantee could add substantial fiscal costs to bank restructuring programs and may increase moral hazard going forward. Using a sample of 42 episodes of banking crises, this paper finds that blanket guarantees are successful in reducing liquidity pressures on banks arising from deposit withdrawals. However, banks' foreign liabilities appear virtually irresponsive to blanket guarantees. Furthermore, guarantees tend to be fiscally costly, though this positive association arises in large part because guarantees tend to be employed in conjunction with extensive liquidity support and when crises are severe.

Perspectives on High Real Interest Rates in Turkey
Author/Editor: Kannan, Prakash
Summary: The Turkish economy is typically characterized as having particularly high real interest rates. Fundamental considerations, such as high growth rates or high returns to capital, do not provide a satisfactory resolution of this puzzle. Instead, we find that two other factors- doubts about the sustainability of disinflation and the existence of a risk premium-have a significant impact on the level of real interest rates in Turkey. Importantly, fiscal policy variables are shown to affect both these factors, suggesting that a more credible and prudent fiscal policy can help reduce real interest rates in Turkey.

Country Reports

Kenya, Uganda, and United Republic of Tanzania: Selected Issues
Grenada: 2007 Article IV Consultation-Staff Report; Staff Supplement; and Public Information Notice on the Executive Board Discussion
Grenada: Statistical Appendix
Grenada: Poverty Reduction Strategy Paper-Preparation Status Report
Kingdom of Swaziland: Selected Issues and Statistical Appendix