Risks, lessons learned, and secondary markets for greenhouse gas reductions

Collectively or individually, countries are likely to implement policies designed to limit greenhouse gas emissions. Experience from tradable quota schemes suggests that emissions trading could significantly reduce the costs of emission limits. The Kyoto Protocol provides the framework for a common trading mechanism for all countries - including countries that would not face immediate emission limits. Significantly, the Protocol places the responsibility for meeting emission limits with national governments. How policymakers choose to implement emission limits will significantly shape the incentives that drive evolving secondary markets for greenhouse-gas-based instruments. Potential market participants who were surveyed rate policy-related risk as higher than business-related risks. Domestic polices designed to reduce fragmentation in secondary markets, establish clear baselines and procedures, and strengthen host-country institutions can all help reduce the risks and costs of emission limits.Economic Theory&Research,Labor Policies,Payment Systems&Infrastructure,Environmental Economics&Policies,Health Economics&Finance,Health Economics&Finance,Environmental Economics&Policies,Carbon Policy and Trading,Energy and Environment,Economic Theory&Research

Cote d'Ivoire : private sector dynamics and constraints

Private sector assessments provide information and analysis essential to formulating strategies for alleviating constraints on private sector development. They are meant to contribute both to the Bank's policy dialogue with borrowing governments and to the formulation of country assistance strategies. Theauthors examine the constraints on growth faced by private enterprises and how these relate to the policy and institutional environment in Cote d'Ivoire. They employ new data sources as well as surveys of, and in-depth interviews with, private entrepreneurs. They focus on: the effects of taxes and labor regulation on private firms; the impact of public spending on private sector development; and the role of informality in enterprise activity. Following are some of their findings. Tax policy and enforcement impose a heavy financial burden on a shrinking base of formal enterprises, whose regulatory burden has also grown. Taxes are increasingly independent of a firm's profits. This substantial fixed cost may lead some businesses to exit prematurely and may discourage others from formal entry. The overall tax burden on small and medium-size enterprises has risen disproportionately, to levels that discourage formal participation in the economy. Informal firms pay some taxes, but there is considerable leakage in collection. Unnecessary rigidities in labor policies weigh less heavily than expected on firms, because they avoid their full costs through such means as subcontracting and apprenticeships. The restrictions nonetheless limit firms'flexibility of operation and ability to reward merit. In the 1980s, public spending increasingly channeled limited financial resources and human capital toward nondevelopment purposes, including poorly performing enterprises and elite-oriented services, precluding their use in the private sector. The methods of financing public spending (such as withholding taxes and accumulating arrears) have sharply curtailed the capital available to private enterprises. The public sector's dramatic accumulation of arrears and growing reputation as a bad customer are undermining the competitive private supply of goods and services to the government. Government employment policies attract many of the most qualified potential entrepreneurs and business professionals to governmentemployment. Rather than a sharp divide, there is a continuum between small informal and large formal firms. Some medium-size and large formal firms engage in informal behavior, and large firms sometimes lower their costs through links with informal firms - including purchases of inputs that have escaped regulation and taxes.Banks&Banking Reform,Environmental Economics&Policies,Public Sector Economics&Finance,Private Participation in Infrastructure,Microfinance

Microeconomics of transformation in Poland : a survey of state enterprise responses

State enterprise behavior and reform have emerged as key issues in the emerging market economies of Eastern Europe because of the size of the state manufacturing sector as measured by its share in GDP, exports, and tax revenues. The difficulties experienced by Polish state-owned enterprises (SOEs) in adjusting and responding to the new economic environment have led to fiscal imbalance, deteriorating portfolios of commercial banks, and burgeoning interfirm payment arrears. The authors examine the economic and behavioral reactions of a significant sample of Poland's largest SOEs to the macroeconomic reforms introduced as part of the"big bang"in January 1990. They track the evolution of output, costs, and profits, and examine wage setting behavior, enterprise debt dynamics, and enforcement of the"micro"hard budget constraint by banks. They conduct a firm-level analysis of the export boom and its causes and document the evolving tax burden on enterprises. Their findings are based on a survey of 75 large SOEs in manufacturing during June 1989 - March 1991 - six months prior to and 15 months following the big bang. Some of the main quantitative conclusions were: (1) The high nominal interest rate on working capital (from 50 to 72 percent of the month of January 1990 alone) inhibited borrowing and motivated firms to pay off zloty loans, leading to a squeeze on working capital. The huge decline in real wages led to a demand shock, witnessed by rising finished goods inventories. Consequently, the initial, unexpectedly large, decline in output could be explained by a combination of nominal interest rate shock and standard demand considerations. (2) High profits in 1990 were temporary, stemming from inflationary gains on once-off inventory sales, devaluation gains on enterprise dollar accounts, and implicit input subsidies from CMEA trade. (3) Banks were lax in enforcing creditworthiness, leading to an adverse selection problem marked by loans going mainly to"bad"firms. (4) State-owned enterprises tend to be myopic, with considerable short-run pressure on wages that works to the detriment of restructuring investments essential for reducing energy and material intensity and product redesign. (5) Nominal and real wages both displayed remarkable flexibility. Employment reduction has lagged output reduction partly because partial indexation of wages to inflation has kept real wages low and partly because of the natural reluctance of worker-controlled SOEs to shed labor. So, there is clear possibility of much higher transitional unemployment once privatization and commercialization get underway on large scale. (6) The hard-currency export boom in 1990 was motivated more by slack domestic demand than higher export profitability. The main qualitative change is a definite attitudinal shift in favor of profits and marketing in contrast to the old exclusive emphasis on production targets. But there is a serious principal-agent problem with managers serving at the pleasure of the workers'council and no obvious owner stressing long-term viability considerations in decision-making. The paper concludes by discussing the microeconomic transformation needed to complete the largely economic big bang. The importance of addressing firm-level managerial incentives and empowering managers is emphasized in the transition to eventual privatization.Markets and Market Access,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Financial Intermediation

Money and the Public Debt: Treasury Market Liquidity as a Legal Phenomenon

The market for U.S. government debt (Treasuries) forms the bedrock of the global financial system. The ability of investors to sell Treasuries quickly, cheaply, and at scale has led to an assumption, in many places enshrined in law, that Treasuries are nearly equivalent to cash. Yet in recent years Treasury market liquidity has evaporated on several occasions and, in 2020, the market’s near collapse led to the most aggressive central bank intervention in history. This Article pieces together what went wrong and offers a new account of the relationship between money issue and debt issue as mechanisms of public finance. It argues that a high degree of convertibility between Treasuries and cash generally requires intermediaries that can augment the money supply, absorbing sales by expanding their balance sheets on both sides. The historical depth of the Treasury market was in large part the result of a concerted effort by policymakers to nurture and support such balance sheet capacity at a collection of nonbank broker-dealers. In 2008, the ability of these intermediaries to augment the money supply became impaired as investors lost confidence in their money-like liabilities (known as repos). Subsequent changes to market structure pushed substantial Treasury dealing further beyond the bank regulatory perimeter, leaving public finance increasingly dependent on high-frequency traders and hedge funds — “shadow dealers.” The near money issued by these intermediaries proved highly unstable in 2020. Policy makers are now focused on reforming Treasury market structure so that Treasuries remain the world’s most liquid asset class. Successful reform likely requires a legal framework that, among other things, supports elastic intermediation capacity through balance sheets that can expand and contract as needed to meet market needs

Factors affecting private financial flows to Eastern Europe, 1989-91

This paper aims at identifying and summarizing some of the factors which influence the market's differing perceptions of Czechoslovakia, Romania, Hungary, Bulgaria and Poland. Information on market perceptions was obtained as a result of numerous interviews with commercial banks and a few investors active in central and eastern Europe. The first section summarizes and compiles cross-country findings in the following areas: (a) the importance of the Soviet umbrella; (b) indicators of relative indebtedness; (c) a summary of funds flowing to the region, by source, from 1989 onwards; (d) a discussion of the maturity profile of commercial debt, in particular the magnitude of short-term debt; (e) project finance and direct foreign investment: who are other private creditors? What factors influence the amount of project finance available?; (f) the institutional setup of the emerging financial sector; and (g) long-term commercial flows, in particular bond finance: access to the Eurobond market for medium- and long-term funds. The rest of the paper contains further details for individual countries. All data have been provided by commercial banks or country reports issued by the Institute of International Finance, since these figures are used by private lenders when assessing the prospects of a particular borrower.Municipal Financial Management,Banks&Banking Reform,Financial Intermediation,Strategic Debt Management,Environmental Economics&Policies

CC363 Revised 1996 1996 Agriculture Outlook and Policy Issues

Campaign Circular363: 1996 Agricultural Outlook and Policy Issues. Factors Affecting the Livestock Industry. Agricultural Inputs. Commodity Marketing. Land and Taxes Issues. Government Program and Implications