Managing Financial Crises Recent Experience

This publication seeks to draw policy lessons from the IMF's experience in handling financial crises around the world over the last decade relevant to the challenges faced by Latin American countries. It contains a number of papers written by IMF staff economists which cover a range of issues including: dealing with banking crises in 'dollarized' economies; debt dynamics and fiscal adjustment; and corporate debt restructuring.

Foreword

vii

Preface

ix

Abbreviations

x

Overview

1

(10)

Charles Collyns

G. Russell Kincaid

The Argentine Context

2

(2)

Contagion and the Macroeconomic Implications of Regime Change

4

(1)

Reestablishing a Credible Nominal Anchor

5

(1)

Dealing with Banking Systems Under Pressure

6

(1)

Fiscal Policy and Economic Crisis

7

(1)

Debt Restructuring

8

(1)

References

9

(2)

Assessing Crisis Vulnerabilities in Latin America

11

(15)

Javier Hamann

Kalpana Kochhar

Timothy Lane

Guy Meredith

Jurgen Odenius

David Ordoobadi

Helene Poirson

David Robinson

Elements of Vulnerability to Crises

11

(1)

Balance Sheet Fragilities

12

(4)

Early Warning Systems

13

(1)

Crisis Cost Models

14

(2)

Policy Paralysis

16

(1)

Economic Constraints

16

(1)

Political Factors

17

(1)

Contagion

17

(4)

Channels of Contagion

18

(1)

Policy Spillovers

18

(3)

Concluding Remarks

21

(1)

Appendix 2.1. Assessing the Scope for Emerging Market Contagion

21

(3)

References

24

(2)

Macroeconomic Consequences of a Financial Crisis

26

(8)

Kalpana Kochhar

Timothy Lane

Miguel Savastano

Crisis Experience in the 1990s

26

(3)

Growth and Current Account Adjustment

26

(2)

Exchange Rate Depreciation and Inflation Pass-Through

28

(1)

The Tablita Episodes

29

(1)

Implications for Argentina

30

(3)

Mitigating Factors

31

(1)

Aggravating Factors

31

(2)

References

33

(1)

Reestablishing a Credible Nominal Anchor After a Financial Crisis

34

(20)

Andrew Berg

Sean Hagan

Christopher Jarvis

Bernhard Steinki

Mark Stone

Alessandro Zanello

Prerequisites for a Credible Nominal Anchor

34

(3)

Experience with Post-Crisis Exchange Rate Regimes

37

(2)

The Stance of Monetary Policy in a Post-Crisis Float

39

(2)

The Framework for Monetary Policy in a Floating Regime

41

(2)

Institutional Reforms to Promote Monetary Policy Credibility

43

(1)

Concluding Remarks

44

(1)

Appendix 4.1. Frameworks of Monetary Policy in Crisis Countries

44

(1)

Appendix 4.2. Institutional Reform for Monetary Policy Credibility in Selected Crisis Cases

44

(8)

References

52

(2)

Dealing with Banking Crises in Dollarized Economies

54

(11)

Anne-Marie Gulde

David Hoelscher

Alain Ize

Alfredo Leone

David Marston

Marina Moretti

Addressing Bank Runs in a Dollarized Economy

54

(6)

Background and General Policies to Stop Bank Runs

54

(2)

Bank Runs in Highly Dollarized Economies

56

(4)

Crisis Resolution and Reintermediation Under Dollarization

60

(3)

Reversing the Causes of the Crisis

60

(1)

Unwinding Emergency and Administrative Measures

61

(1)

Adapting Bank Restructuring and Prudential Arrangements

62

(1)

Reviewing the Role of Foreign Banks

62

(1)

Asset Reintermediation

63

(1)

Concluding Remarks

63

(1)

Reference

64

(1)

Public Debt Dynamics and Fiscal Adjustment

65

(20)

Richard Hemming

Teresa Ter-Minassian

Debt Sustainability

65

(3)

The IMF's New Debt Sustainability Framework

65

(1)

Priorities for Future Work

66

(2)

Fiscal Adjustment in Crisis Countries

68

(6)

Why Fiscal Adjustment?

68

(2)

Fiscal Adjustment Experience

70

(1)

The Demand Impact of Fiscal Tightening

71

(2)

The Quality of Fiscal Adjustment

73

(1)

Institutional Reforms

74

(3)

Fiscal Policy Formulation and Implementation

74

(1)

Intergovernmental Fiscal Relations

75

(1)

Debt Management

76

(1)

Concluding Remarks

77

(1)

Appendix 6.1. The Output Gap and Fiscal Policy: A Case Study of Argentina

78

(4)

References

82

(3)

Corporate Debt Restructuring in the Wake of Economic Crisis

85

(16)

Sean Hagan

Eliot Kalter

Rhoda Weeks-Brown

Linkages Across Sectors and Burden Sharing

86

(1)

The Framework for Corporate Restructuring

87

(2)

Alternative Approaches to Corporate Restructuring

87

(1)

Classification of Corporates

88

(1)

Workout Mechanisms

88

(1)

Legal and Regulatory Systems and the Institutional Infrastructure

89

(1)

International Experience

89

(6)

The Direct-Government, Across-the-Board Approach

89

(1)

The Market-Based, Case-by-Case Approach

89

(6)

The Hybrid Approach

95

(1)

Implications of the International Experience for Latin American Countries

95

(2)

Concluding Remarks

97

(1)

Appendix 7.1. Summary of Key Issues in Designing Orderly and Effective Corporate Insolvency Procedures

97

(3)

References

100

(1)

Applying the Prague Framework in Crisis Resolution

101

(14)

Cheng Hoon Lim

Carlos Medeiros

Complementing the Catalytic Approach

102

(4)

Debt Restructuring

106

(6)

Objectives of Debt Restructuring

107

(3)

Road Map to Debt Restructuring

110

(2)

What Next?

112

(1)

Collective Action Clauses

112

(1)

Sovereign Debt Restructuring Mechanism

112

(1)

Concluding Remarks

113

(1)

References

114

(1)

Task Force Members

115

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Managing Financial Crises Recent Experience and Lessons for Latin America: Recent Experience and Lessons for Latin America

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Managing Financial Crises Recent Experience and Lessons for Latin America: Recent Experience and Lessons for Latin America

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