Imf Staff Papers Volume 57 No 2

This paper introduces a new database of financial reforms covering 91 economies over 1973-2005. It describes the content of the database, the information sources utilized, and the coding rules used to create an index of financial reform. It also compares the database with other measures of financial liberalization, provides descriptive statistics, and discusses some possible applications. The database provides a multifaceted measure of reform, covering seven aspects of financial sector policy. Along each dimension the database provides a graded (rather than a binary) score, and allows for reversals.

From the Foreword to the first issue: “Among the responsibilities of the International Monetary Fund, as set forth in the Articles of Agreement, is the obligation to fact as a center for the collection and exchange of information on monetary and financial problems,’ and thereby to facilitate ‘the preparation of studies designed to assist members in developing policies which further the purposes of the Fund.’ The publications of the Fund are one way in which this responsibility is discharged. “Through the publication of Staff Papers, the Fund is making available some of the work of members of its staff. The Fund believes that these papers will be found helpful by government officials, by professional economists, and by others concerned with monetary and financial problems. Much of what is now presented is quite provisional. On some international monetary problems, final and definitive views are scarcely to be expected in the near future, and several alternative, or even conflicting, approaches may profitably be explored. The views presented in these papers are not, therefore, to be interpreted as necessarily indicating the position of the Executive Board or of the officials of the Fund.”

This chapter highlights asymmetries and errors in reported balance of payments statistics. The aggregation of individual countries' balance of payments statements into group statements or a world total provides clues to certain inconsistencies and asymmetries present in the figures. The method, however, does not necessarily disclose all the differences and inaccuracies that exist, nor does it clearly indicate generally which figures, by country or by category of transaction, are to be regarded as the more reliable when substantial differences come to light. The IMF staff, working with the national compilers to improve the statistics, has concentrated on producing a record of individual countries' economic transactions with the rest of the world that can be used as a basis for gauging the impact of these transactions on the countries' domestic economy and foreign position. Most of the available balance of payments statistics may be judged reasonably adequate to serve this purpose.

WILLIAM. white, who joined the International Monetary Fund in 1948, spent his entire professional life in the Research Department. Present and past staff members, many of whom benefited from his advice, have asked that his contribution-to the work of the Fund should receive recognition in Staff Papers. This appreciation draws on excerpts from written recollections of some of his colleagues.

This paper provides an analysis of attempts at international coordination of national policies leads to the conclusion that true international action that has a good chance to succeed for specific measures, such as changes in exchange rates, customs tariffs, and perhaps discount rates. There is, on the other hand, little reason to assume that the desire prevalent in all countries for full employment, stable prices, and growth could be supported to any important degree by the acceptance of international obligations. The targets of economic policy as they have been put forward for our discussion appear simple and noncontroversial: reasonable price stability, full employment and an adequate rate of growth, and balance of payments equilibrium. If in any country the relationship between wages and employment is such that at full employment wages increase more rapidly than is compatible with price stability, then obviously the price and employment objectives of that country are not compatible.

Stock and bond issues and capital markets in less developed countries (LDCs) have recently received increasing attention from policymakers, and this preliminary study provides a cross-country survey of the actual experience of LDCs in this respect. Capital markets in LDCs are markedly underdeveloped, reflecting a combination of historical circumstances, current level of economic and financial development, and government policy—including inflation and low interest rates on government debt. Through its regulatory powers, the government can do much to reduce uncertainty (and, hence, risk). Supervising capital markets has several dimensions: preventing fraud; improving information; reducing transactions costs; and developing capital market techniques and institutions. Information on the Brazilian experience includes the fact that a strong, self-sustained capital market has not yet been established, despite the gains made. Tax incentives do provide a way of promoting capital market development, but the benefits of initial development must be judged in terms of the cost of tax receipts forgone.

This paper develops an endogenous growth model of the influence of public investment, public transfers, and distortionary taxation on the rate of economic growth. The growth–enhancing effects of investment in public capital and transfer payments are modeled, as is the growth–inhibiting influence of the levying of distortionary taxes that are used to fund such expenditure. The theoretical implications of the model are then tested with data from 23 developed countries between 1971 and 1988, and time series cross sectional results are obtained that support the proposed influence of the public finance variables on economic growth.

Do highly indebted countries suffer from a debt overhang? Can debt relief foster their growth rates? To answer these important questions, this article looks at how the debt-growth relation varies with indebtedness levels, as well as with the quality of policies and institutions, in a panel of developing countries. The main findings are that, in countries with good policies and institutions, there is evidence of debt overhang when the net present value of debt rises above 20–25 percent of GDP; however, debt becomes irrelevant above 70–80 percent. In countries with bad policies and institutions, thresholds appear to be lower, but the evidence of debt overhang is weaker and we cannot rule out that debt is always irrelevant. Indeed, in such countries, as well as in countries with high indebtedness levels, investment does not depend on debt levels. The analysis suggests that not all countries are likely to profit from debt relief, and thus that a one-size-fits-all debt relief approach might not be the most appropriate one.