Idea Transcript
The Role of the IMF in the Global Financial Crisis Miranda Xafa Hellenic Bank Association June 2009
1
I. Economic and financial developments
Global economy faces its most severe recession 2 since WWII Real GDP Growth
(Annual percent change) 10
Emerging and Developing economies
8
World
6 4 2
Advanced economies
0 -2
1970
80
90
2000
10
-4
Global outlook deteriorated sharply since October 08; modest turnaround expected with policy stimulus WEO Real GDP Growth Projections (In percent change from a year earlier)
U.S.
Euro
Japan
China
India
World
2009 (Apr. 09) 2009 (Oct. 08) Change
-2.8 -0.7 -2.1
-4.2 -0.5 -1.5
-6.2 -0.2 -6.0
6.5 8.5 -2.0
4.5 6.3 -1.8
-1.3 2.2 -3.5
2010 (Apr. 09) 2010 (Oct. 08) Change
0.0 1.5 -1.5
-0.4 0.9 -1.5
0.5 1.1 -0.6
7.5 9.5 -2.0
5.6 6.8 -1.2
1.9 3.8 -1.9
Source: IMF, World Economic Outlook, April 2009 Update.
3
4
Heightened uncertainty a defining feature of the crisis VIX and Standard Deviation of Forecasts (in percent)
1.2
70
VIX Index (RHS)
1.0
60
50 0.8
U.S. Consensus Forecasts (STDEV; following year; LHS)
0.6
40
30 0.4 20 0.2
Asian Crisis
Gulf War I
LTCM
10
9/11 Apr. 09
0.0
0 90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Tentative signs of stabilization emerged in April-May 2009...
5
Retail Sales
Manufacturing PMIs
(Values greater than 50 indicate expansion)
(Annualized percent change of 3mma over previous 3mma)
65
Emerging economies
20
60
15
55
10
50
5
45
0
Advanced economies
40
World -5
Euro area 35
-10
United States Emerging economies
30
2000
02
04
06
May 09
2000
02
04
06
Apr. 09
-15
...as equity markets and consumer confidence recovered Equities
(1/1/2007=100; FTSE)
6
Consumer Confidence (Jan. 2005=100)
120
180 Lehman Brothers
110
160 140
100
120
90
100 80 U.S.
70 60
80
Japan
U.S.
Euro area
Japan U.K.
Euro area
50
60 40 20
U.K.
40 Jan-07
0 Jul-07
Jan-08
Jul-08
Jan-09
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
Causes of output collapse – Advanced countries
Negative feedback loop between financial sector and real economy Deleveraging → Market correction → Lower wealth, collapsing confidence, falling demand Recession → NPLs → provisioning, bank losses
7
Causes of output collapse – emerging markets
Declining external demand and exports
External financing constraints
Lower commodity prices
8
Recovery prospects and risks Recovery prospects based on:
Slow improvement of financial system Housing price stabilization Fiscal stimulus
Risks:
Real and financial feedback loop Deflation risks Fiscal concerns/debt dynamics Negative feedback from emerging economies
9
U.S. housing – Signs of stabilization Real House Prices
10
Housing Inventories
(index, 1995 = 100)
(new homes)
600
250
14
FHFA
Thousands of units (LHS)
Case-Schiller
500
NAR (median prices)
200
12
10
FHFA trend CS trend
400
8
NAR trend
150
6
300
4 100
Months of supply (RHS, SA)
200
100
50 70
75
80
85
90
95
00
05
2
0 70
75
80
85
90
95
00
05
Systemic risks remain elevated despite government interventions
CDS Spreads for High-Grade Financials (basis points)
Banks begin issuing govt. guaranteed debt
250 200 150
Bear Stearns Lehman Bros. collapse Bankruptcy
600 500
Europe
400
US (rhs)
300 100
200
50 0 Jan-07 Source: Bloomberg
Bleak Economic Releases Globally
Jul-07
Jan-08
Jul-08
100 0
Jan-09 2
Ja n Fe -07 b M -07 ar Ap 07 r M -07 ay Ju -07 nJu 07 l Au -07 g Se -07 p O -07 ct No -07 v De -0 7 cJa 0 7 n Fe -08 b M -08 ar Ap 08 r M -08 ay Ju -08 n0 Ju 8 l Au -08 g Se -08 p O -08 ct No -08 v De -0 8 cJa 0 8 n Fe -09 b M -09 ar Ap 09 r M -09 ay Ju -09 n09
Rising concerns over fiscal sustainability...
6.5
10 Year Government Bond Yield
6.0 GREECE GERMANY ITALY PORTUGAL SPAIN IRELAND FRANCE
5.5
5.0
4.5
4.0
3.5
3.0
2.5
12
Ja n Fe -07 b M -07 ar A -07 p M r-07 ay Ju -07 nJu 07 A l-07 ug Se -07 p O -07 c N t-07 ov D -07 ec Ja -07 n Fe -08 b M -08 ar A -08 p M r-08 ay Ju -08 nJu 08 A l-08 ug Se -08 p O -08 c N t-08 ov D -08 ec Ja -08 n Fe -09 b M -09 ar A -09 p M r-09 ay Ju -09 n09
...are reflected in wider spreads over Bunds Spreads From the 10-Year German Bond Yield
350 GREECE ITALY PORTUGAL SPAIN IRELAND FRANCE
300
250
200
150
100
50
0
13
Corporate bond spreads also remain wide; Credit is sharply curtailed as banks delever Advanced Economies: Corporate Bond Spreads
(basis points)
2400
US and EU: Credit Growth in Private Sectors
(q/q changes; in billions of local currency) 200
2500
160
2000
120
1500
80
1000
40
500
High Yield 2000 High Grade 1600
1200
800
400 0
0
0
United States (RHS) Euro area (LHS) -400
2002
04
06
Apr. 2009
-40
2002
04
06
08: Q4
-500
14
The global banking system remains under stress
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Interbank Markets
Bank CDS Spreads
(3-month LIBOR minus T-bill rate; in percent)
(High-grade; in basis points)
5
600
United States
4
500
United States Euro area
400
3
2
300
Euro area
200
1
Japan 100
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2007 2008 2009
0
2007
08
May 09
Cross-border bank flows have dropped sharply BIS Cross-Border Bank Liabilities 1400
(Exch. Rate adjusted changes, in billions of U.S. dollars)
1000 600 200 -200 -600 -1000 -1400
Related offices Interbank Nonbanks Monetary authorities Total
-1800 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08
Source: BIS
Deterioration in emerging markets may, in turn, be transmitted back to mature markets’ banks Banking Systems Exposures to Emerging Markets ( as % of Mature Market’s GDP )
US Asia EMEA Latin America
UK Switzerland Sweden Spain Netherlands Italy Germany France Greece Austria 0 Source: BIS
10
20
30
40
50
60
70
80
90 100
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II. Policy Initiatives
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Policy Implications – Macro Policies
Get consumers to spend more; target credit constrained consumers and firms
Government-financed infrastructure spending
Easy monetary policy to reduce interest rates;
BUT:
Essential need for credible medium-term fiscal programs to ensure debt sustainability
Many countries starting from an already dangerous position (aging, health care)
Fiscal stimulus and automatic stabilizers are expected to boost activity
20
General Government Fiscal Balances (Percent of GDP)
2
Emerging and Developing economies
0
-2
Advanced economies
-4
-6
-8
2000
02
04
06
08
10
-10
Monetary and credit policies have been eased massively Central Banks Total Assets
Policy Rates
(Index; 1/5/2007 = 100)
(Percent)
14
21
400 Euro area United Kingdom United States Japan
12
350
10
300 Emerging markets
8
250 200
6
United States
4
150 100
2
Euro area Japan
0 01
02
03
04
05
06
07
08
09
2007
08
50 Apr. 09
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Policy Implications –Financial Sector
Restoring the financial system has three elements:
Liquidity provision and measures to preserve functioning financial markets (Central banks)
Bank recapitalization (Fiscal authority)
Taking bad assets off the books; sell T-bills and use the funds to buy risky assets; “bad bank” (Fiscal authority)
To be effective, financial policies need to be comprehensive and internationally coordinated
Credit deterioration is feeding back to higher expected writedowns across all sectors
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Estimates of Potential Writedowns, 2007-2010 (billions of US dollars)
Origin of Debt
Outstanding
United States Loans Securities Loans and Securities
13,507 13,047 26,554
Europe Loans Securities Loans and Securities
20,759 3,048 23,807
Japan Emerging markets Total all Loans and Securities
Estimated Writedowns October 2008 GFSR April 2009 GFSR 1,068 1,644 2,712
601 1,002 1,604
… … …
888 305 1,193
551 186 737
7,358
…
149
129
…
…
…
340
57,719
425 980 1,405
Banks
…
4,054
2,810
4
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Global Policy Initiatives
G-20 Leaders’ Summit in Washington on Nov 15, 2008 agreed on 5 objectives:
Common understanding of the root causes of the global crisis Review of countries' actions addressing the crisis Agreement on common principles for reforming financial markets Action plan to implement those principles and to develop further recommendations for later review Reaffirmation of commitment to free market principles
Working groups set up to make specific proposals at next G-20 Leaders’ Summit in London on April 2, 2009
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Global Policy initiatives
G-20 Leaders’ Summit in London on April 2 agreed to:
Restore confidence, growth and jobs Repair the financial system to restore lending Strengthen financial regulation to rebuild trust Fund and reform IFIs to overcome this crisis and prevent future ones Promote global trade and investment, reject protectionism Build an inclusive, green, and sustainable recovery
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G-20: Restoring growth and jobs
Unprecedented fiscal expansion of $5 trillion by end2010 Comprehensive support to banking systems through liquidity, capital, dealing with impaired assets to restore normal flow of credit IMF to “assess regularly the actions taken and the global action required”
G-20: Strengthening financial supervision and regulation
Recognition that major failures in financial regulation and supervision were key causes of crisis; implement Action Plan to address shortcomings Establish new Financial Stability Board (FSB); FSB to collaborate with IMF to provide “early warning system” of macro-financial risks Extend perimeter of regulation to all systemically important financial institutions Prevent excessive leverage; improve valuation standards; end bank secrecy IMF, FSB to monitor progress, report to G-20 Ministers in November
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28
G-20: Strengthening IFIs
Significantly increase IMF resources to $750 bl Support a $250 bl SDR allocation to increase global liquidity Support $100 bl of new lending by MDBs Welcome IMF’s new Flexible Credit Line (FCL) which provides large, upfront access to financing without conditionality to countries with solid policy frameworks; Mexico was “first mover” in requesting an FCL Commit to complete IMF quota and voice reform by January 2011
Why expand IMF Resources?
Without adequate IMF support, countries may be forced to contract or let their currencies weaken sharply, triggering corporate and financial insolvencies. The NAB enhances international stability by providing an insurance policy for the global economy. The NAB is a set of credit arrangements that the IMF maintains with 26 countries to obtain supplemental resources temporarily when the IMF's existing resources are substantially drawn down in circumstances that threaten the stability of the international monetary system. Ensuring adequate IMF resources through an expanded NAB provides immediate benefits in terms of confidence to markets, reducing the need for more costly rescues of crisis countries. An adequately funded IMF promotes market confidence that emerging market and developing countries have the financing they need to address the effects of the current crisis.
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30
Large IMF financial packages since September 2008
Country
IMF ($ bl)
Total ($ bl.)
% of GDP
Belarus
2.5
7.4
13
Hungary
15.7
25.4
16
Iceland
2.1
10.9
65
Latvia
2.4
10.5
33
Pakistan
7.6
12.4
7
Ukraine
16.4
18.0
10
31
...and Precautionary Flexible Credit Lines
Country
IMF ($ bl)
Total ($ bl.)
% of GDP
Mexico
47
47
6
Poland
20
20
5
Colombia
10
10
5
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III. Five priorities for regulatory reform
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1. Extending perimeter of regulation
“Shadow” banking system was key regulatory failure Perimeter of regulation must include all systemically important institutions & markets to capture & mitigate systemic risk At same time, need to avoid “rush to regulate” that could stifle innovation & impose unnecessary administrative burdens. IMF has made significant analytical contribution to the measurement of systemic risk that can help define perimeter of regulation (GFSR, April 2009)
2. Reducing excessive leverage and procyclicality
Safeguards against systemic risk: Tighter capital & liquidity rules would contribute to crisis prevention by discouraging accumulation of risks & leverage in good times Measures to reduce procyclicality would create a cushion that could be drawn upon in a downturn
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Originate-and-Distribute Model (O&D)
Although somewhat tainted now, O&D is conducive to financial stability by reducing leverage without hindering credit supply. Leveraged institutions (e.g. banks) should keep liquid assets with rel. short maturities, and securitize longer-term, less liquid assets; these should be held by unleveraged, real-money investors. Regulators should encourage revival of O&D model with appropriate safeguards, incl. monitoring of off-balance sheet exposures to ensure risks are widely spread.
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36
3. Addressing market discipline
Disclosure practices must be strengthened for systemically-important institutions, incl. both banks and non-banks. Revamped set of financial indicators is needed, including off-balance sheet derivatives that turned out to be so important in this crisis.
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4. Cross-border regulation
Rules must be strengthened before problems actually occur Need to define rules for burden-sharing across jurisdictions IFI Joint Action Plan, announced in Feb 09, to provide funding to EU banks with subsidiaries in CEE countries. Supervisory colleges for all large cross-border financial institutions is a major step.
5. Strengthening systemic liquidity management
Establishing a clearing facility for the CDS market would help reduce counterparty risk (now: OTC market). Improved mechanisms for cross-border liquidity provision are vital (ECB repos vs. swaps). Nevertheless: regulation, not monetary policy, is the right tool to deal with asset bubbles.
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Thank you!