Transparency and emerging market bond spreads : [Version June 2011]

I investigate the effect of transparency on the borrowing costs of Emerging Markets Economies. Transparency is measured by whether or not the countries publish the IMF Article IV Staff report and the Reports on the Observance of Standards and Codes (ROSC). Using difference-in-difference estimation, I study the effect on the sovereign credit spreads for 18 Emerging Market Economies over the period 1999-2007. I show that the effect of publishing the Article IV reports is negligible while publishing the ROSC matters, leading to a reduction in the spreads of over 15% in the samples 1999-2006 and 1999-2007. JEL Classification: F33, F34, G15 Keywords: Sovereign Bond Markets, Transparency, Emerging Market Economie

Fiscal risks and the quality of fiscal adjustment in Hungary

The government of Hungary has contained the main fiscal risks of the transition to a market economy. It has paid off and resolved most problems in the banking and enterprise sectors. Since 1995 it has implemented fiscal adjustment with the objective of long-term fiscal stability rather than an immediate deficit target. The main result has been pension reform, which has raised temporary deficits but reduced the long-term public liability. Only the health sector awaits the reform needed for long-term fiscal stability. Levels of government spending, budget deficits, and public service remain high, but the government has made great progress toward rationalizing public spending and improving the management of budget and off-budget fiscal risks. In the transition, the government has taken on new fiscal risks--mainly state guarantees and growing programs of credit and guarantee agencies (operating on behalf of the government) organized after privatization to support, first, industries and, later, exporters. The government has dealt with these new programs of contingent government support prudently and transparently, with reasonable ceilings on (and reporting of) risks. Hungary is likely to face pressure for additional spending. Priorities in fiscal policy should include reforming health financing, establishing checks on hidden subsidies in guarantee programs, and determining the government's optimal exposure to risk. In terms of institutions, the government should aim to create a more flexible, responsive budget process and greater capacity to analyze medium-term fiscal risks, to build a more results-oriented budget management system, and to improve mechanisms for sharing risk between the public and private sectors under government programs.Insurance&Risk Mitigation,Banks&Banking Reform,International Terrorism&Counterterrorism,Payment Systems&Infrastructure,Financial Crisis Management&Restructuring,Banks&Banking Reform,National Governance,Insurance&Risk Mitigation,Municipal Financial Management,Financial Crisis Management&Restructuring

Common Capital: A Thought Experiment in Cross-Border Resolution

Cross-border bank resolution efforts focus on burden-sharing between bank owners, private creditors and the public. There is little talk of burden-sharing among governments, despite the rich history of governments trying to stick one another with the cost of financial conglomerate failures. There is an unspoken fear that acknowledging the need to allocate losses among governments would undermine post-crisis pledges of No More Bailouts. This symposium essay argues for making government stakes in private financial firms more transparent, and for using the contingent public share as a key to loss allocation among governments in cross-border banking crises

Reviews

Sally Brown, Steve Armstrong and Gail Thompson (eds.), Motivating Students, London: Kogan Page, 1998. ISBN: 0–7494–2494‐X. Paperback, 214 pages. £18.99

Social Justice in the OECD – How Do the Member States Compare? Bertelsmann Stiftung Sustainable Governance Indicators 2011

A cross-national comparison of social justice in the OECD shows considerable variation in the extent to which this principle is developed in these market-based democracies. According to the methodology applied in this study, Iceland and Norway are the most socially just countries.1 Turkey, which ranks among the bottom five in each of the six targeted dimensions, is the OECD’s least socially just country. The findings of the cross-national study can be summarized as follows: The north European states comprise a league of their own. Leading by far on the Justice Index, Iceland, Norway, Denmark, Sweden and Finland achieve particularly good results in the dimensions of “access to education,” “social cohesion” and “intergenerational justice.” Yet even in Scandinavia, there are some areas in want of action. Despite its overall strong showing, Sweden, for example, struggles with a rate of youth unemployment three times as high as the general unemployment rate. Most central and northwestern European states rank in the upper midrange, although the Netherlands (6), Switzerland (7) and France (10) rank higher than Germany (14). The east-central European OECD members Hungary (17), Poland (20) and Slovakia (24) rank in the lower midrange together with their southern European neighbors. The high-ranking outlier here is the Czech Republic (11) due to its very low poverty levels in cross-national comparison. All southern European countries lie considerably below the OECD average, with Turkey and Greece in the bottom group of the ranking. In both these countries, fair access to education and intergenerational justice (i.e., equity in burden-sharing across generations) are particularly underdeveloped. Canada (9) is the top performer among the non-European OECD states. Its high ranking can be attributed to strong results in the areas of education, labor market justice and social cohesion. Australia (21), despite its relatively inclusive labor market, is struggling with larger problems in poverty prevention and educational justice, and is therefore lagging behind in terms of creating a sound framework for social justice. Japan (22) and South Korea (25), where income poverty is relatively spread, fail to rank above the bottom third of the Justice Index. Japan also receives particularly low marks for intergenerational justice

Predicting currency fluctuations and crises - do resident firms have an informational advantage?

The authors investigate whether resident enterprise managers have an informational advantage about the countries in which they work. They propose a method for extracting information available to resident managers but unknown to investors and forecasters. They rest their hypothesis of informational advantage using a unique data set, the Global Competitiveness Survey. The survey asks local managers about their outlook for the country in which they reside. They find that local managers do have useful private information. Local managers'responses improve on conventional forecasts of future volatility and changes in the exchange rate, which are based on economic fundamentals or interest rate differentials. They find that the local business community perceived in advance the recent crises in the Republic of Korea, Russia, and Thailand, but not those in Indonesia and Malaysia. Markets have had limited success predicting crises and might do better by drawing on private information available to resident enterprise managers, who seem to know better than markets about future movements in exchange rates.ICT Policy and Strategies,Payment Systems&Infrastructure,Public Health Promotion,Health Monitoring&Evaluation,Environmental Economics&Policies,Economic Theory&Research,Financial Intermediation,Environmental Economics&Policies,Health Monitoring&Evaluation,ICT Policy and Strategies

ADB–OECD Study on Enhancing Financial Accessibility for SMEs: Lessons from Recent Crises

During the era of global financial uncertainty, stable access to appropriate funding sources has been much harder for small and medium-sized enterprises (SMEs). The global financial crisis impacted SMEs and entrepreneurs disproportionately, exacerbating their traditional financing constraints. The financial conditions of many SMEs were weakened by the drop in demand for goods and services and the credit tightening. The sovereign debt crisis that hit several European countries contributed to further deterioration in bank lending activities, which negatively affected private sector development. The global regulatory response to financial crises, such as the Basel Capital Accord, while designed to reduce systemic risks may also constrain bank lending to SMEs. In particular, Basel III requires banks to have tighter risk management as well as greater capital and liquidity. Resulting asset preference and deleveraging of banks, particularly European banks with significant presence in Asia, could limit the availability of funding for SMEs in Asia and the Pacific. Lessons from the recent financial crises have motivated many countries to consider SME access to finance beyond conventional bank credit and to diversify their national financial system. Improving SME access to finance is a policy priority at the country and global level. Poor access to finance is a critical inhibiting factor to the survival and growth potential of SMEs. Financial inclusion is thus key to the development of the SME sector, which is a driver of job creation and social cohesion and takes a pivotal role in scaling up national economies. The Asian Development Bank (ADB) and the Organisation for Economic Co-operation and Development (OECD) have recognized that it is crucial to develop a comprehensive range of policy options on SME finance, including innovative financing models. With this in mind, sharing Asian and OECD experiences on SME financing would result in insightful discussions on improving SME access to finance at a time of global financial uncertainty. Based on intensive discussions in two workshops organized by ADB in Manila on 6–7 March 2013 and by OECD in Paris on 21 October 2013, the two organizations together compiled this study report on enhancing financial accessibility for SMEs, especially focusing on lessons from the past and recent crises in Asia and OECD countries. The report takes a comparative look at ADB and OECD experiences, and aims to identify promising policy solutions for creating an SME base that is resilient to crisis, from a viewpoint of access to finance, and which can help drive growth and development