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  • Author: Thorsten Beck, Liliana Rojas-Suarez
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Center for Global Development
  • Abstract: A sound financial regulatory framework is critical for minimizing the risk imposed by financial system fra­gility. In the world’s emerging markets and developing economies (EMDEs), such regulation is also essential to support economic development and poverty reduc­tion. Meanwhile, it is increasingly recognized that global financial stability is a global public good: recent decades have seen the development of new inter­national financial regulatory standards, to serve as benchmarks for gauging regulation across countries, facilitate cooperation among financial supervisors from different countries, and create a level playing field for financial institutions wherever they operate. For the worldwide banking industry, the international regulatory standards promulgated by the Basel Com­mittee on Banking Supervision (BCBS) stand out for their wide-ranging scope and detail. Even though the latest Basel recommendations, adopted in late 2017 and known as Basel III, are, like their predecessors, calibrated primarily for advanced countries, many EMDEs are in the process of adopting and adapting them, and many others are considering it. They do so because they see it as in their long-term interest, but at the same time the new standards pose for them new risks and challenges. This report assesses the implica­tions of Basel III for EMDEs and provides recommen­dations for both international and local policymakers to make Basel III work for these economies.
  • Topic: Development, Economics, Emerging Markets, Markets
  • Political Geography: Global Focus
  • Author: Guillermo Calvo
  • Publication Date: 12-2018
  • Content Type: Working Paper
  • Institution: Center for Global Development
  • Abstract: The last presidential elections in Argentina (2015) and in Brazil (2018), represent a change from populism towards more orthodox economic policies in two important countries in the region. This shift is not only economic but also reflects other fundamental changes in the electorate, in particular the growing dissatisfaction of the population with issues such as weak security and growing corruption in political institutions. In both countries, there are significant fiscal problems and adjustment is needed. But in modern democracies, the success or failure of economic policy is closely tied to political developments. Notably, both countries face their macroeconomic challenges under a parliamentary minority; a situation that is common to many countries in the region at present. Economies highly integrated into the international capital markets, with macroeconomic imbalances inherited from populist governments, face a particularly difficult challenge. On the one hand, the required fiscal tightening entails the execution of policies that may result in greater social unrest, thus encouraging a gradual approach. On the other hand, a gradual approach requires a greater funding stream of financial funds thus exposing the economy to higher financial risk. The dilemma of choosing between a shock adjustment and a gradual approach has been central to understanding what has happened in Argentina and is essential to assessing the options available to the next government in Brazil. The dilemma about the optimal speed of fiscal adjustment has been faced by other countries in the region in the past. In some successful cases of gradualism, the presence of a clear commitment mechanism over the fiscal path, including the implementation of goals agreed with the IMF, has played a decisive role in mitigating the credibility gap typically linked to gradual approaches. One question that the Committee puts forward throughout this statement is to what extent does Argentina's experience entail relevant lessons for Brazil? In order to thoroughly understand these possible lessons and the challenges that both countries face, it is important to consider the similarities and differences between Argentina and Brazil. There is no doubt that both countries are dealing with formidable fiscal challenges. In both countries, there is a primary fiscal deficit and public debt levels are high in relation to GDP. Also, both economies face low or negative growth rates, partly because of cyclical or temporary factors and partly because of low productivity levels due to complex regulatory regimes and tax systems that hinder investment. On the other hand, the realities of Argentina and Brazil are very different in some important aspects. Brazil has not had to cope with a currency crisis and external financing problems such as those of Argentina; the latter has had to reduce its hefty deficit in the current account of the balance of payments. In contrast, Brazil’s external public debt and external financing needs of the public sector are low. However, while the private sector’s foreign indebtedness is quite moderate in Argentina, it is relatively high in the case of Brazil. As regards to monetary policy and inflation, the situation in both countries is also very different. Whereas the inflation rate in Argentina has suffered a substantial increase throughout this year in the context of low credibility in its monetary policy, Brazil has kept a low and stable inflation rate and has significantly improved its central bank’s credibility. These similarities and differences require a differentiated discussion of each country, even if some challenges facing Argentina and Brazil are shared, and whether their experiences provide lessons for each other. The international context plays a fundamental role for both economies in determining the results of economic policy. Before embarking on a more detailed analysis of the challenges facing Argentina and Brazil during the next year, we will analyze how the international context has recently changed, in the next section.
  • Topic: Economics, Globalization, Populism, Local
  • Political Geography: Brazil, Argentina, South America