How the 1981-83 Chilean banking crisis was handled

The banking crisis in Chile in 1981-83 was widespread - representing about 60 percent of the banking system's total portfolio. The crisis arose because of macroeconomic problems and was exacerbated by unsound financial practices. The government was faced with two extreme solutions: to let insolvent banks go bankrupt, or to bail them out, absorbingtheir losses. Some institutions were liquidated, and others were rescued and rehabilitated, depending on their solvency. The government used two types of mechanisms to rehabilitate the banking system. One type was aimed at improving borrowers'capacity to repay loans to the banks. The other was aimed at rebuilding the banking system's capital. The government also strengthened banking supervision by improving loan portfolio analysis and increasing the transparency of financial transactions. The decision to recognize and allocate losses quickly, and to implement comprehensive measures to resolve the banking crisis, were the key to Chile's success in surviving the crisis. Had allocation of losses been delayed, or solutions partial, losses would probably have increased and the system would not have recovered so rapidly.Housing Finance,Banks&Banking Reform,Financial Crisis Management&Restructuring,Financial Intermediation,Economic Theory&Research

Do Exchange Rate Regimes Matter? Evidence for Developing Countries

Most countries which have experienced exchange rate crises over the last two decades have been under soft pegs or crawls. These exchange rate arrangements have normally succumbed in the face of massive capital inflow reversals --especially in developing countries-- thus provoking a search for options. Hard pegs and floating regimes seem to be the only viable options. This paper carries through an empirical analysis with panel data to study the relationship between the option of exchange rate regime and macroeconomic performance in developing countries. We use an extended and updated database to study the evidence for 154 countries over the period 1974-2004. Performance is measured by per capita GDP growth and its volatility. Our results show that floating rates tend to present higher levels of growth and lower levels of volatility in relation to other exchange rate arrangements. Intermediate regimes (soft and crawling pegs), on the other hand, score at the bottom of the growth rankings, while hard pegs appear to induce the largest growth volatility. In light of these results, it should not come as a surprise that the world is not moving to a single global currency, as some have predicted. The world is moving to fewer currencies, but at an extremely slow pace. Yet, floating rates will probably remain the most popular form of exchange rate regime over the next half century. This paper provides some basis for that popularity.exchange rate regimes, hard pegs, developing countries, growth regressions, volatility

THE IMPACT OF G-3 EXCHANGE RATE VOLATILITY ON DEVELOPING COUNTRIES,

This paper describes G-3 exchange rate volatility and evaluates its impact on developing countries. The paper presents empirical evidence showing that G-3 exchange rate volatility has a robust and significantly negative impact on developing countries’ exports. A one percentage point increase in G-3 exchange rate volatility decreases real exports of developing countries by about 2 per cent, on average. G-3 exchange rate volatility also appears to have a negative influence on foreign direct investment to certain regions, and increases the probability of occurrence of exchange rate crises in developing countries. These results imply that greater stability in the international exchange rate system would help improve trade and foreign direct investment prospects for developing countries – and would help prevent currency crises.

How Optimal are the Extremes? Latin American Exchange Rate Policies During the Asian Crisis

Exchange rate, Crawling-bands, Currency boards, Macroeconomic sustainability, Latin America

Oposición política e institucionalidad para el rol opositor en un régimen presidencial de gobierno

The article refers to the relevance of the opposition as a political institution and provides an account of its historical evolution under the most common governmental regimes, such as parliamentarism, semipresidentialism and presidentialism. It also refers to the status of opposition in Chile in the context of its robust presidential system, thus proposing the convenience of its institutionalization.El artículo trata sobre la relevancia de la oposición como institución política, para lo cual hace una reseña de su evolución histórica bajo los principales regímenes de gobierno, el parlamentario, el semipresidencial y el presidencial. Analiza también la situación de la oposición política en Chile en el marco del presidencialismo acentuado en vigor, planteando la conveniencia de su institucionalización

Does Firm Value Move Too Much to be Justified by Subsequent Changes in Cash Flow?

The appropriate measure of cash flow for valuing corporate assets is net payout, which is the sum of dividends, interest, and net repurchases of equity and debt. Variation in net payout yield, the ratio of net payout to asset value, is mostly driven by movements in expected cash flow growth, instead of movements in discount rates. Net payout yield is less persistent than dividend yield and implies much smaller variation in long-horizon discount rates. Therefore, movements in the value of corporate assets can be justified by changes in expected future cash flow.

Contractionary Devaluation, and Dynamic Adjustment of Exports and Wages

Recent macroeconomic models of developing countries have emphasized the possibility of contactionary devaluations, stressing that domestic aggregate demand is likely to be reduced by the devaluations while aggregate supply may respond only slowly to the change in relative prices brought about by the devaluation. These results have been obtained in static models. In this paper we add wage and export-sector dynamics to the models of contractionary devaluation, and show that the effects which produce contractionary devaluations in the short term can produce limit cycles in the long run. The economy never returns to long-run equilibrium following a devaluation, but rather moves with fixed periodicity through successive phases of boom and bust.

Currency Crises: Is Central America Different?

In a recent paper we analyzed the determinants of currency crises in a sample of 30 high and middle income countries (Esquivel and Larrain, 1998). In this work we focus on Central America and analyze whether the determinants of currency crises in this region are different from those identified in our previous work. We conclude that they are not, and show that a small set of macroeconomic variables helps to explain the currency crises that took place in Central America between 1976 and 1996. The results of tests applied here support the empirical approach that attempts to explain currency crises by focusing on the behavior of a few macroeconomic indicators. Part of the interest of this result stems from the fact that the Central American countries had an exchange rate system markedly different from that prevailing in the economies that are usually analyzed in similar studies.