Managing Temporary Capital Inflows: Lessons from Asia and Latin America

As witnessed by Mexico and Argentina in 1995 and by the Southern Cone countries of Latin America in the early 1980s, the macroeconomic adjustment to a sudden reversal of foreign capital flows can be extremely painful. There are at least four major reasons why governments and central banks should care about the sustainability of the capital flows

Ratings since the Asian Crisis

Asia, Financial crisis

How to spend it: Commodity and non-commodity sovereign wealth funds

Sovereign wealth funds have become important players in global financial markets. But their investments have repeatedly raised concerns, such as fear of industrial espionage or geopolitical threats. This paper argues that the principal motivation for setting up SWFs should put such concerns into the appropriate perspective. Development economics can explain both the funding sources and the motives that have led to the recent SWF boom, thus helping to prevent the imposition of investment restrictions in OECD countries. The basic principles of public finance and development economics leave little room for conspiracy theories, but draw attention to the fact that funding sources and economic motives differ between commodity and non-commodity SWFs. These principles point to several major motives for countries to build up sovereign wealth funds, rather than merely accumulating official foreign exchange reserves. Foreign exchange reserves can become excessively large, additional economic diversification and efficiency gains can be achieved, technology transfer and network benefits can be fostered, and demographic pressures can be tackled. When using the excess funds, governments have to take important, fundamental decisions. The Hotelling and Hartwick Rules provide theoretical guidance, demonstrating the benefits of transforming oil or other resources into other forms of wealth, rather than consuming them. This not only benefits the investing but also the recipient countries: Protectionism, such as restrictions imposed on SWFs from oil-rich countries, will tend to reduce the risk-adjusted return for oil exporters, and may well contribute to higher oil prices as oil supply is withheld. --

Debt overhang, liquidity constraints and adjustment incentives

Investment in most heavily indebted countries has been weak since 1982. Several papers (Krugman, 1988; Corden, 1988; Sachs, 1989) have subsequently established the debt overhang proposition: the existence of a heavy debt burden reduces the incentive to invest.1 This proposition has given an important rationale for the 1989 shift in international debt management, emphasizing debt relief rather than new money for problem debtors. This paper will raise doubts against the debt overhang proposition: Its analytical implications are found to be ambiguous, its empirical content is found to be weak. We conclude, that investment in the average debtor country is likely to benefit more from new lending than from debt reduction.

Virtual chemical reactions for drug design

Two methods for the fast, fragment-based combinatorial molecule assembly were developed. The software COLIBREE® (Combinatorial Library Breeding) generates candidate structures from scratch, based on stochastic optimization [1]. Result structures of a COLIBREE design run are based on a fixed scaffold and variable linkers and side-chains. Linkers representing virtual chemical reactions and side-chain building blocks obtained from pseudo-retrosynthetic dissection of large compound databases are exchanged during optimization. The process of molecule design employs a discrete version of Particle Swarm Optimization (PSO) [2]. Assembled compounds are scored according to their similarity to known reference ligands. Distance to reference molecules is computed in the space of the topological pharmacophore descriptor CATS [3]. In a case study, the approach was applied to the de novo design of potential peroxisome proliferator-activated receptor (PPAR gamma) selective agonists. In a second approach, we developed the formal grammar Reaction-MQL [4] for the in silico representation and application of chemical reactions. Chemical transformation schemes are defined by functional groups participating in known organic reactions. The substructures are specified by the linear Molecular Query Language (MQL) [5]. The developed software package contains a parser for Reaction-MQL-expressions and enables users to design, test and virtually apply chemical reactions. The program has already been used to create combinatorial libraries for virtual screening studies. It was also applied in fragmentation studies with different sets of retrosynthetic reactions and various compound libraries

Delinquent Mortgages, Neglected Swimming Pools, and West Nile Virus, California

Adjustable rate mortgages and the downturn in the California housing market caused a 300% increase in notices of delinquency in Bakersfield, Kern County. This led to large numbers of neglected swimming pools, which were associated with a 276% increase in the number of human West Nile virus cases during the summer of 2007

Loans or Grants?

We argue in this paper that cancelling the debt of the poorest countries was a good thing, but that it should not imply that the debt instrument should be foregone. Debt and debt cancellations are indeed two complementary instruments which, if properly managed, perform better than either loans or grants taken in isolation. The core of the intuition, which we develop in a simple two-period model, relates to the fact that the poorest countries are also the most volatile, so that contingent facilities, explicitly incorporating debt cancellation mechanisms, are a valuable instrument.grants, loans, developing countries

Innovative Approaches to Funding the Millennium Development Goals

There are now a wide array of proposals for new forms of financing the Millennium Development Goals, of which this Policy Brief discusses the ninearguably most "popular". Such proposals can be sorted according to their funding source. Firstly, a number of global taxes have been suggested, such as currency transaction taxes, environmental taxes, a brain drain tax, an international airport tax, taxation of ocean fishing, taxation of arms exports, a "bit" tax on computer use, or a luxury goods tax. Another broad group of funding proposals involvesthe private sector, either public-private alliances or exclusively individuals,corporate entities and the civil society. Here the focus is on topic-specific global funds, a shift of charitable giving towards the Millennium Development Goals orGlobal Premium Bonds and lotteries to stimulate private funding. Thirdly, thereare proposals that can be categorised under financial engineering (if not money creation), such as a development-focused allocation of Special Drawing Rights at the IMF, the International Finance Facility, and the use of public guarantees to stimulate private funding