Uma Ramakrishnan. Regional mechanisms and international financial architecture November 16, 2010 New York

Transcription

1 Uma Ramakrishnan Regional mechanisms and international financial architecture November 16, 2010 New York

2 Why do we need a Global Financial Safety Net? Capital flows volatility Financial interconnectedness

3 Why do we need a Global Financial Safety Net? Capital flows volatility Multilateral Global Financial Regional Safety Net National authorities Financial interconnectedness

4 National authorities Comparative advantages Best information of economic developments, vulnerabilities and policy constraints

5 Regional Comparative advantages Regional expertise Coordinating policies of members Less stigma attached to RFAs lending Effective in mobilizing private sector involvement

6 IMF Comparative advantages Ability to mobilize large resources Risk sharing through nearly universal membership Global perspective of vulnerabilities and potential risks Technical expertise in crisis management

7 Gaps National Self insurance costly and limited resources Diminishing marginal return from reserve accumulation Regional Resources may be insufficient, especially in systemic crises hitting the region IMF IMF instruments are not reserve like Stigma may still be attached to IMF lending No mechanism to deal with systemic crises

8 IMF EU Co financing FCL: Poland (IMF only: $20 bn) EU BoP Facility joined with IMF programs: Hungary, Latvia, and Romania ( 47.5 bn) Coordinated EC/ECB/IMF framework : Greece ( 110 bn) EFSF: new facility Pari passu financing with IMF Joint EC/ECB/IMF programs

9 IMF EU Surveillance & Technical Cooperation Bilateral surveillance Regional surveillance (policies/institutions) Euro area Consultation EWE Spillover reports Bank Coordination Initiative Bank Stress Tests Technical assistance

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11 Heightened Risks from Capital Volatility

12 Financial Interconnectedness Cross-Country Bank Liabilities in Asia (in percent of GDP of debtor country) More Complex Note: the charts shows the network of cross border bank claims as a percentage of GDP of the borrower country. An arrow from country x to country y means that country x s BIS reporting banks hold claims on residents of country y.

13 Reserves mattered, up to a point

14 IMF and RFAs resources EU EU 440B 440B AMF AMF $2.7B $2.7B FLAR FLAR $2.3B $2.3B IMF IMF $856B $856B CMIM CMIM $120B $120B

15 IMF lending reform: Reserve-like instruments Balancing act

16 IMF lending reform: Balancing act Reserve-like instruments Risks Safeguards Moral hazard

17 IMF lending reform: Balancing act Reserve-like instruments Risks Qualification by country performance

18 Reformed Lending Toolkit Qualification by country performance FCL PCL SBA Stronger policies Ex-ante conditionality Weaker policies Ex-post conditionality

19 Addressing gaps in IMF s toolkit First mover problem/stigma Multi country FCLs FCL prequalification? Systemic crises: liquidity runs self fulfilling insolvencies New liquidity instrument? Formal mechanism to forestall contagion in systemic crises? The Global Stabilization Mechanism (GSM)

20 Systemic shock Seek voluntary private sector involvement (e.g., rollover agreements) IMF Board activates GSM Activate Offer to approve FCL arrangements /prequalification for multiple countries INSTRUMENTS Greater Synergies in Coordinate response Coordinate with monetary response authorities, with regional risk boards, & regional arrangements financing arrangements Surveillance Technical cooperation Co financing Mobilize RESOURCES Modify POLICIES

21 FCL: Poland FCL arrangement: Renewed on July, 2, 2010 (for one year) 1000% of quota available upfront ($20 bn.) Potential need no drawing to date No co financing from EU Liquidity support from ECB (repos)

22 EU BoP Facility EU facility for non euro area members ( 50 bn. capacity) 3 joint EU/IMF programs: Hungary, Latvia, Romania (SBAs) Total assistance: 47.5 bn. (EU: 45% of IMF contribution)

23 Greece Program Approval on May 9, 2010: Bilateral loans centrally pooled by the EC IMF s SBA Program design and monitoring: Coordinated framework between EC, ECB, IMF Consistent program documents Joint quarterly reviews (with joint missions) Co financing: Pari passu financing with IMF (on similar terms) Total of 110 bn, with 30 bn from IMF: 3/8 ratio

24 European Financial Stability Facility Framework agreement signed on July 15, 2010 Available to 16 euro area members Financial support pari passu with IMF Subject to policy conditionality negotiated jointly by EC, ECB, and IMF Funding by issuing own instruments backed by sovereign guarantees of up to 440 bn. Operational but no activity to date