Sustainability of private capital flows to developing countries : Is a generalized reversal likely?

Since 1989, private capital flows to a select group of developing countries have increased sharply, but developments in 1994 have caused concern about the sustainability of those flows. Several highly indebted developing countries that are implementing reform are concerned that a generalized reversal - similar to episodes of capital flight in the early 1980s - might disrupt their economies and threaten economic reform. Because the surge in private capital flows coincided with a period of low international interest rates and intensive policy reform in developing countries, debate has been active about whether the surge is driven mainly by domestic (pull) or external (push) factors. Under the pull hypothesis, successful domestic policies are the key to ensuring sustainable capital inflows; under the push hypothesis, an increase in international interest rates would cause a reversal of those flows (back to the industrial world). Using a partial adjustment model in which both domestic and external variables are defined, the authors explain why private capital flows to some developing countries but not to others (using panel data for 1986-93 for 22 countries). They argue that a generalized reversal is unlikely in countries that maintain a fundamentally sound macroeconomic environment. In fact, their empirical results show that domestic factors such as domestic savings and investment ratios significantly affected the recent surge in capital inflows. Further, they suggest that countries that have not received significant foreign capital - including countries in sub-Saharan Africa - could begin to if they implemented structural reforms that allow them to export, save, and invest at higher rates. Reducing their foreign debt (which might call for a continuation of recent debt reduction operations) could also help attract foreign private investors.International Terrorism&Counterterrorism,Economic Theory&Research,Capital Markets and Capital Flows,Banks&Banking Reform,Payment Systems&Infrastructure,Economic Theory&Research,Macroeconomic Management,Banks&Banking Reform,Environmental Economics&Policies,International Terrorism&Counterterrorism

Macroeconomic adjustment to capital inflows : Latin American style versus East Asian style

In recent years, private capital inflows to some developing countries have increased sharply. This increase has provided the financing needed to enhance the use of existing capacity and to raise investment levels. But capital inflows produce their own problems. They can increase inflation and lead to exchange rate appreciation, for example. The authors review the macroeconomic repercussions of an increase in capital inflows. Generally, it will result in appreciation of the real exchange rate, a larger nontradable sector, a smaller tradable sector, and a larger trade deficit. Under a fixed exchange rate regime, it will also result in faster inflation and an accumulation of foreign reserves. Can government intervention minimize the size and effects of real exchange rateappreciation? The authors discuss different mechanisms that can be used to limit the appreciation - and discuss the difference, in this respect, between portfolio investment and external debt. Finally, they review and compare the recent experiences of four Latin American countries (Argentina, Chile, Colombia, and Mexico) and five East Asian countries (Indonesia, Malaysia, the Philippines, the Republic of Korea, and Thailand), and discuss how these countries have dealt with the macroeconomic side effects of capital inflows. The authors found the following: All nine countries have avoided a permanent, significant increase in inflation, it can be argued. In Argentina and Mexico inflation has been decreasing for three or four years, and in the other seven countries it has remained stable. The countries that received the largest average capital inflows (as a proportion of GDP) in 1989-92 are not those that experienced the greatest exchange rate appreciation. In fact, the countries with the greatest capital inflows (Chile, Malaysia, and Thailand) have experienced either depreciation or low appreciation of their currencies. (Appreciation was lower in Thailand than in Korea despite much greater capital inflows in Thailand.) Countries with decreasing government consumption as a percentage of GDP (Chile, Indonesia, and Malaysia) showed less appreciation of the real exchange rate. Countries with increasing government consumption as a percentage of GDP (Argentina, Korea, Mexico, and the Philippines) showed the greatest appreciation of the real exchange rate, despite not receiving the greatest capital inflows.Macroeconomic Management,Economic Stabilization,Economic Theory&Research,Financial Economics,Environmental Economics&Policies

Grants and debt forgiveness in Africa : a descriptive analysis

The authors analyze the effects of bilateral debt forgiveness on 32 low-income countries in Africa (1984-93). Asking whether it makes a difference for recipient countries to receive pure grants rather that official development assistance (ODA) debt relief, they focus on how one form of aid or the other affects the countries'import capacity. They conclude that: a) grants allowed recipient countries to significantly expand their import capacity for 1984-93 as grants and import capacity have been increasing since 1984. But the increasing share of concessional lending and debt relief in recent years has not allowed these countries to reduce total indebtedness nor solve debt overhang. b) the biggest recipients of debt relief also received the lion's share of the pure grants increase. Debt forgiveness and pure grants were allocated not entirely consistent with standard economic hierarchies. c) bilateral ODA debt forgiveness appears to be neutral in the sense of not having any significant impact on import capacity. During 1989-93, multilateral lending replaced the bilateral lending decrease caused by an increase in grants. d) private creditors have typically withdrawn money as grants increased. And debt relief has had a crowding-out effect on new lending. Bilateral donors are switching their development finance to Africa from concessional and non-concessional lending to a combination of pure grants and ODA relief.Payment Systems&Infrastructure,Banks&Banking Reform,Public Sector Economics&Finance,Municipal Financial Management,Public&Municipal Finance,Urban Economics,Municipal Financial Management,Banks&Banking Reform,Public Sector Economics&Finance,Public&Municipal Finance

Financial liberalization and the capital account : Thailand, 1988-97

The authors examine Thailand's macro-economy and micro-economy for the period 1988-97 to assess the extent to which the country's mix of macroeconomic and financial sector policies contributed to its economic crisis in 1997. They conclude that the crisis was fundamentally one of private sector debt, rooted in private behavior that affected the magnitude and composition of investment and how it was financed. Unlike the Latin American debt crisis, the Thai crisis was not caused by excessive sovereign borrowing. Financial sector weakness--including inadequate regulation and supervision, implicit deposit insurance, concentrated ownership structures, and poor accounting and disclosure--combined with liberalization of the financial sector and capital accounts, increased vulnerability by creating incentives for risk-taking by financial institutions. Many macroeconomic fundamentals were strong, but the combination of tight monetary policy and an inflexible exchange rate created strong incentives for residents to expose themselves to excessive foreign exchange and liquidity risks. Weak corporate governance, including close corporate links to the banking sector, encouraged risky investments and over-diversification in the corporate sector.Payment Systems&Infrastructure,Financial Intermediation,Banks&Banking Reform,International Terrorism&Counterterrorism,Economic Theory&Research,Banks&Banking Reform,Financial Intermediation,Economic Theory&Research,International Terrorism&Counterterrorism,Financial Economics

Effects of nitrogen on the photosynthetic response and distribution of Bromus tectorum

Bromus tectorum is the most widely distributed invasive species in the Great Basin. The effects of B. tectorum invasion include changes in plant community composition, nutrient and water availability, and increased wildfire frequency. However, its eradication from the region is unlikely. Therefore, effective management strategies to control B. tectorum are needed. In the Great Basin, nitrogen limits plant growth, but nitrogen availability often increases after environmental disturbances (e.g. wildfires). In my dissertation, we examined the effects of increased nitrogen availability on B. tectorum. First, we evaluated the effects of nitrogen availability on productivity and photosynthetic response of greenhouse-grown B. tectorum. Second, we developed a semi-mechanistic model to estimate assimilation rate of B. tectorum in response to leaf nitrogen content, temperature, light, and vapor pressure gradient. The model was developed using information derived from greenhouse-grown plants and validated using field-grown plants. Finally, we examined how assimilation rate of B. tectorum varied across the landscape. To achieve this, we used the semi-mechanistic model to estimate assimilation rate using large scale climate data and different levels of leaf nitrogen content. This study advances our knowledge about the physiological responses of B. tectorum to changes in nitrogen availability and climate variables

Capital Controls in Chile: Effective? Efficient?

New empirical evidence with regards to the effectiveness and efficiency of Chile's capital controls is provided here, based on more and better data on the range of controls and a broad assessment of their costs and benefits. The paper concludes that capital controls have been partially effective by raising the wedge between domestic and foreign interest rates, reducing aggregate net capital inflows, and changing the debt composition toward longer maturities, without significantly altering the real exchange rate. Part of these effects is temporary as the effectiveness of controls is eroded over time for a given interest rates differential. Controls may have been crucial by contributing to Chile's lower exposure to short-term foreign liabilities at the time of the 1997-98 international financial turmoil. However, achieving temporary macroeconomic benefits by relying on capital controls involves incurring in financial and growth effects that raise concerns about their efficiency. The costs that resulted from the policy mix that comprised the capital controls, in terms of quasi-fiscal losses and lower investment and growth, were probably not negligible.

Volatility and contagion in a financially integrated world : lessons from East Asia's recent experience

The buildup of vulnerabilities in East Asia is shown here to be mainly the result of weaknesses in financial intermediation, poor corporate governance, and deficient government policies, including pro-cyclical macroeconomic policy responses to large capital inflows. Weak due diligence by external creditors, fueled partly by ample global liquidity, also played a role but global factors were more important in triggering the crises than in causing them. The crisis occurred partly because the economies lacked the institutional and regulatory structure to cope with increasingly integrated capital markets. Trouble arose from private sector decisions (by both borrowers and lenders) but governments created incentives for risky behavior and exerted little regulatory authority. Governments failed to encourage the transparency needed for the market to recognize and correct such problems as unreported mutual guarantees, insider relations, and nondisclosure of banks'and companies'true net positions. Domestic weaknesses were aggravated by poorly disciplined foreign lending. The problem was not so much overall indebtedness as the composition of debt; a buildup of short-term unhedged debt left the economics vulnerable to a sudden loss of confidence. The same factors made the crisis's economic and social impact more severe than some anticipated. The loss of confidence directly affected by private demand - both investment and consumption - which could not be offset in the short run by net external demand. The effect on corporations and financial institutions has been severe because of the high degree of leveraging and the unhedged, short-term nature of foreign liabilities, which has led to a severe liquidity crunch. Domestic recession, financial and corporate distress, liquidity constraints, and political uncertainty were self-reinforcing, leading to a severe downturn.International Terrorism&Counterterrorism,Economic Theory&Research,Fiscal&Monetary Policy,Payment Systems&Infrastructure,Banks&Banking Reform,Macroeconomic Management,Banks&Banking Reform,Financial Crisis Management&Restructuring,Economic Theory&Research,Financial Intermediation

Characterization of linseed oil epoxidized at different percentages

Several degree-epoxidized linseed oils (8, 20, 35, 40, 47 and 54%) were prepared for changing different reaction parameters such as temperature, amount of peroxide and enzyme of the well studied chemoenzymatic epoxidation method. The epoxidation reaction following was carried out by Infrared spectroscopy (FTIR) and Proton Nuclear Magnetic Resonance (H1NMR) which are the most usual spectroscopes for this propose. However, microRaman spectroscopy and Differential Scanning Calorimetry (DSC) characterization were used in this work as complementary techniques. Particularly, DSC permitted to correlate the epoxy-aperture energy to each epoxidation percentage making it another optional technique for quantify epoxidation levels in triglycerides

Case 2 : Hurricanes and Health: A Systems Thinking Approach to Understanding Complexity and Context

This case examines the complexity of responding to a natural disaster. Leona Hernandez, a water and sanitation engineer from the Pan American Health Organization, is in charge of coordinating the water and sanitation response on the island of Dominica following Hurricane Maria in October of 2017. Upon visiting one of the shelters in the remote fishing village of Scotts Head, she becomes aware of the precarious environmental conditions in the community. Many of the residents are distressed by the complete destruction of their surroundings, and a lack of running water has led to a reliance on drinking from the river. Of immediate concern is the potential for an outbreak of leptospirosis; however, issues of the disaster’s impacts on mental health are also emphasized. The Water, Sanitation and Hygiene team members each have a different idea about how to act and which response actions to prioritize. Leona must unite the team and coordinate an effective response, which becomes more complex with another storm system threatening to develop near the island