Haiti Donor Conference

Haiti Pledge Form looks quiet interesting.

More countries could use this approach in dealing with their donors.

Related: Another pledging form from a small state.

Spend more on Public Health, Mexico!

Mexico’s public health budget is about 3 percent of gross domestic product — within the range of spending by other major Latin American economies, but well below the rate in developed countries, according to the World Bank; and Mexico has only about half as many hospital beds per capita than the United States.

To help Mexico meet the extra costs of the flu epidemic, the World Bank issued a loan of $205 million.

“The two key things that they need to work on now,” said Keith Hansen, a World Bank health official for Latin America and the Caribbean, “is surveillance, to pick up patterns of infection, and to make sure that everybody who needs care has access to it.”

In an acknowledgment that Mexicans frequently act as their own doctors, the government’s announcements, played repeatedly on the radio, advise people not to self-medicate and instead to seek out medical attention.

-First Flu Death Provides Clues to Mexico Toll

Latin America's Finance Minister of the Year

Velasco, 48, applied the lessons learned from decades of economic failure in Latin America -- ones he said could also help the U.S. The current crisis followed “a massive regulatory failure in many advanced financial markets over the last decade or so,” Velasco said in an interview April 21 in his office overlooking the presidential palace in downtown Santiago...

Velasco, who runs 30 miles (48.3 kilometers) a week, is the son and grandson of national politicians. He received his higher education while living in the U.S. after Augusto Pinochet’s military dictatorship exiled his father from Chile in 1976 for criticizing the regime. Velasco earned a bachelor’s degree in philosophy and economics in 1982 and a master’s in international relations in 1984 at Yale University in New Haven, Connecticut, according to his resume. He received a doctorate in economics from Columbia University in New York in 1989....

Velasco taught economics for most of the 1990s at NYU, according to his resume. From 2000 to 2006 he was a professor at Harvard University in Cambridge, Massachusetts, where he worked with Lawrence Summers, now U.S. President Barack Obama’s National Economic Council director.

“In this world, there are some people who are smart. There are some that are practical,” said Summers. “Andres Velasco is both.”...

Velasco “was always looking for the policy implications of what he was doing, which is very unique,” said Guillermo Calvo, a Columbia macroeconomist who hired Velasco as a teaching assistant. “He was one of the best, but you always sensed that he was going to eventually converge to politics.”

Summers, Calvo and Velasco will be panelists tomorrow at a seminar in Washington examining the effects of the global economic meltdown on Latin America.

-Harvard Peso Doctor Vindicated as Chile Evades Slump

Vodka is stronger than Tequila

Dealing with an International Credit Crunch: Policy Responses to Sudden Stops in Latin America;

A new study by the Inter-American Development Bank shows that recessions are far less severe in countries with room to adopt more flexible monetary and fiscal policies. However, this is not something for all nations, as success depends on economic initial conditions at the time of the crisis.

The study alerts that countries in which governments have saved little during the commodity boom years will have limited scope to increase spending to alleviate the upcoming recession stemming from the current crisis. Any attempt to boost spending dramatically could erode confidence in the country’s ability to repay its debts in the future.

The IDB study “Dealing with an International Credit Crunch: Policy Responses to Sudden Stops in Latin America” looks into successful policy responses during past global financial crises and draws some important lessons that can shed some light to the policy options countries in the region are facing today.

”Without good initial economic conditions, countries have limited scope to act,” Said Eduardo Cavallo, one of the IDB economists that participated in the study said. “Still, initial conditions are not destiny. Adequate policy decisions and support from multilateral organizations can help alleviate some of such constraints.’’

El Salvador letter of intent

To mitigate these risks, we have designed a program aimed at preserving macroeconomic stability during 2009 and boosting the economy’s resilience to external shocks. The program aims to: (i) bolster confidence by maintaining sound macroeconomic policies; (ii) upgrade the regulatory and supervisory framework of the banking system; and (iii) increase the liquidity buffers of the financial system.

Within this context, the program will focus on preventive and contingency measures, in particular, in the financial system. The measures will be anchored on strict adherence to El Salvador’s monetary regime of official dollarization and a prudent fiscal policy, while expanding social programs to mitigate the impact of the global growth slowdown. Financial system policies will concentrate on enhancing readiness to detect and respond resolutely to signs of stress in the banking system...

The nonfinancial public sector (NFPS) comprises the central government, the rest of the general government (Instituto Salvadoreño del Seguro Social (ISSS), the municipal governments, public hospitals, the national university, and other decentralized agencies), and the nonfinancial public sector enterprises (Comisión Ejecutiva Hidroeléctrica del Río Lempa (CEL), Comisión Ejecutiva Portuaria Autónoma (CEPA), Administración Nacional de Acueductos y Alcantarillados (ANDA), and Lotería Nacional de Beneficiencia (LNB)).

3. The overall balance of the NFPS is measured on a cash basis from below the line, defined as (a) net domestic financing of the NFPS; plus (b) net external financing of the NFPS; plus (c) proceeds from exceptional revenues such as, but not limited to, proceeds from privatization or licenses and concessions, as defined in the attached Table A1. The components of the NFPS financing will be defined and measured as follows:

(a) The net domestic financing of the NFPS is defined as the sum of: (i) the increase in net claims of the domestic financial system on the NFPS, excluding government bonds initially sold abroad; (ii) the net increase in the amount of public sector bills (Letes) and bonds held outside the domestic financial system and the NFPS, excluding bonds initially sold to nonresidents; and (iii) floating debt of the NFPS due to expenditure operations and tax refund payments.

(b) The net external financing of the NFPS comprises (i) disbursements of external loans; plus (ii) receipts from the issuance of government bonds abroad and Letes held by nonresidents; minus (iii) cash payments of principal (current maturities of both loans, bonds and Letes); minus (iv) cash payments of arrears (principal and interest); minus (vi) debt buybacks or other prepayments of debt (at market value); minus (vii) debt-equity swaps accounted at the market value of these papers; and minus/plus (viii) the net increase/decrease in other foreign assets of the nonfinancial public sector.

(c) proceeds from exceptional revenue such as, but not limited to, proceeds from privatization, the sale of licenses, and the granting of concessions. These would be defined as (i) the cash payments received by the Treasury from the sale of state-owned assets; plus (ii) debt equity swaps, accounted at market values. Also included are up-front payments

-El Salvador: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

What do they teach at University of Illinois Econ Dept.

President Rafael Correa has declared his country in default on foreign debt as his government grapples with falling oil income and a decline in remittances from Ecuadoreans living abroad. Calling the debt “immoral and illegitimate,” Mr. Correa said his government would not make a $31 million interest payment, a move heightening concern in global markets over Ecuador’s $10 billion in foreign debt. The decision by Mr. Correa, an American-educated economist, could have far-reaching impact in Ecuador, which risks being shut off from foreign credit markets even as the move temporarily frees up funds for social welfare projects.

-Ecuador: President Orders Debt Default

Correa did his Economics PhD at University of Illinois at Urbana-Champaign

Related;
Ecuador defaults on sovereign bonds;

Ecuador’s refusal to meet the $30.6m payment on the country’s Global 2012 bond, despite the fact that it has $5.65bn in cash reserves, sent dollar-denominated debt prices down sharply.

”I gave the order not to pay the interest and to go into default,” Mr Correa said. ”We know very well who we are up against - real monsters.”...

Alberto Bernal, Head of emerging market macroeconomic Strategy at Bulltick Capital Markets, said the move was a prelude to a decision to exit dollarisation.

”Dollarisation is popular in Ecuador. Yet president Correa does not believe in dollarisation, and he needs further tools to pump the economy, because he will never receive the support of the private sector to generate employment,” Mr Bernal said. ”We think that a 60 per cent to 70 per cent devaluation is likely to take place at some point in the near future, unless oil prices recover fast.”

Ecuador abandoned the sucre for the dollar in 2000 after the collapse of its banking sector, which effectively leaves Mr Correa with no monetary policy of his own...

Mr Correa, a US –trained economist and a close ally of Hugo Chávez, Venezuela’s president, has pledged an ambitious programme of social spending or on the implementation of a new constitution.

”The big problem with dollarisation is that if you don’t take it seriously, and you keep a loose fiscal policy as we have seen in the past few years, you have to provide an alternative for an overappreciated and uncompetitive economy,” a former Ecuadorean minister told the FT. ”If we didn’t have the commodities boom we could have very easily seen a collapse of the real sector and the financial sector in Ecuador much earlier.”

Photo of the Day- What Joy is like in Castro's Cuba

-The End of the End of the Revolution

Assorted on National Accounts

Latin America: Highlights from the Implementation of the System of National Accounts 1993 (1993 SNA)

Understanding National Accounts

Learn from the Master

I’m someone who admires President Clinton very much. Like all of us, he is not a perfect man. But I guess I was struck again and again with the 1993 budget deal, with what happened in Mexico with the way he worked to contain the Asian financial crisis. But on all sorts of things, he did the politically convenient thing. But when it was really important, I never saw him hesitate to do what he thought was the right thing. Probably the single moment I will remember with the greatest clarity was the night Secretary Rubin was sworn in as Secretary of the Treasury by Chance. We walked in and we told him that after Bob’s swearing in, we walked in and we told him that Mexico was going to default within 48 hours if the United States did not make an appropriate commitment. He asked how large a commitment. Bob turned to me. I said $25 billion. One of his aides said you mean, $25 million. Bob said, no. He means $25 billion. There was a certain silence in the room. Another very senior person on the White House staff remarked – remember, this is January 1995, so it’s two months after the President had lost badly the 1994 election. One of his most senior people remarked that if we send this $25 billion to Mexico and it doesn’t come back, there is no way you are going to be reelected. The president didn’t hesitate. He said – I’m going to clean up slightly what he said but the essence of it was – this is serious, this is why we’re here. We are going to do our best to make the right decisions. If we make the wrong decisions and we lose an election, that is how the process ought to work. So I just want to know two things. First, is there a substantial chance that something very serious will happen if we don’t do this? We said yes. Then he said, I realize there are no guarantees, there are no certainties, but is there a reasonable chance that is we are prepared to make a commitment that we will contain the situation. We said yes. He said, well, it’s pretty obvious what we should do. That launched us on something that had a fair number of ups and downs. If I look back at the calendar of those events and look at graphs of the market, it was basically pretty clear that the thing was going to work within about two-and-a-half months. But if I take my subjective experience of those two-and-a-half months, and I think about it, it feels more like two years. That was probably the single most dramatic of the episodes that I was involved in.

-Larry Summers

An Anti-corruption Ministry?

An interview with Paraguayan President Fernando Lugo;

Transparency Watch: How do you plan to institutionalise the fight against corruption?

Fernando Lugo: First, as a basis, by auditing and establishing permanent controls by and within each of the government’s departments. Additionally, through the creation – which will be finalised at the appropriate time – of a National Anti-corruption Ministry, which will set the political and technical norms to elevate such a battle to the most institutionalised level possible.

via PSD Blog

An MTEF to Manage Aid Flows

IMF recommends Dominica;

The mission recommended moving gradually to a medium-term expenditure framework (MTEF) to help manage the effects of recent aid inflows. In recent years, the government has taken steps to diversify its trade and economic cooperation linkages, especially with China and Venezuela, which has resulted in increased (but uncertain) aid flows (Box 5). This includes assistance under the PetroCaribe and Bolivarian Alternative for the America’s (ALBA) agreement with Venezuela. An MTEF would give greater predictability to government expenditure, reduce economic volatility, and help prevent an appreciation in the REER associated with aid-financed spending beyond the economy’s absorptive capacity. The mission also recommended improving the framework for executing and monitoring grant-financed projects. This would be aided by early approval of the pending Finance Administration Act, which would enhance recording and accountability in government finances. Regarding financing under the PetroCaribe and ALBA agreements, staff and the authorities agreed that such financing should be consistent with the overall public expenditure and debt strategy, and preserve the passthrough of changes in international oil prices. The authorities indicated that they propose to save the bulk of the concessional financing for fuel consumption under the PetroCaribe initiative. They plan to set up an investment fund, possibly at the ECCB, and restrict their spending on social projects from this source to the net return derived from the investment fund. Arrangements are also being made to incorporate the government owned petroleum trading company and ensure that its activities are clearly reflected in the government accounts.

Related;
Hype and Reality: "The" Medium-term Expenditure Framework in Developing Countries

Poor Haiti waiting for aid

Meager Living of Haitians Is Wiped Out by Storms

Not Related;
IMF Mission Reaches Agreement in Principle on a US$750 million Stand-By Arrangement with Georgia;

The IMF Stand-By Arrangement is intended to support the economic policies of the Georgian authorities and to help mitigate the adverse economic and financial consequences of the recent conflict.

Joint Needs Assessment Begins in Georgia

A Classic and a must read

Sudden stops, the real exchange rate and fiscal sustainability: Argentina’s lessons;

The fall of the Convertibility Program - the currency board regime in Argentina - has been subject of much discussion. This paper aims to provide a new interpretation of the collapse of Convertibility with a special emphasis on three key structural characteristics of Argentina’s productive and financial structure and on political economy considerations.

The paper starts by explaining the role of the Russian crisis of August 1998 in changing the behavior of capital markets and in producing an unexpected and prolonged stop in capital flows (which is referred to as Sudden Stop) to emerging market economies, including Latin America. It argues that Argentina is extremely vulnerable to a Sudden Stop in capital inflows such as the one that followed the Russian crisis. Factors contributing to this vulnerability include a relatively closed economy indebtedness; a high level of indebtedness; and financial currency mismatches due to a high degree of dollarization both in the public and private sectors.

The paper then identifies key vulnerability indicators by contrasting Argentina’s performance relative to other Latin American countries that were also subject to the Sudden Stop. It also provides an explanation for the political issues that ensued after the Sudden Stop and the fiscal collapse.

Three major findings emerge from this analysis:

* economies like Argentina are vulnerable to changes in international conditions and may require large increases in equilibrium real exchange rate (RER)
* large changes in the RER could generate deep financial distress in the corporate sector and/or lead to financial problems for the public sector
* a banking crisis may be the inevitable because banks are exposed to RER changes either directly or through the public sector and its large public debt

The paper concludes with some policy lessons for Latin America that emerge from Argentina’s experience. The recommendations mentioned in the paper include:

* switching to exchange rate flexibility as a way of reducing the real effects of Sudden Stops
* dealing with unsustainable fiscal positions in order to allow the public sector to adequately respond in times of crisis
* creating markets for the issuance of debt in domestic currency not indexed to the exchange rate
* increasing trade openness

An MTFF for Suriname

The mission welcomed the authorities’ interest in establishing a medium-term fiscal framework (MTFF) and encouraged them to move as fast as feasible on this front.

• Staff proposed that fiscal discipline over the medium term be anchored on a debt target of no more than 20–25 percent of GDP when revenues are at trend. This would allow some room for debt to temporarily rise when commodity revenues were unusually low, without threatening sustainability. The authorities found this ceiling somewhat restrictive, and preferred a ceiling of some 30 percent.

• Staff indicated that an MTFF should also include a target for the non-mineral balance. The authorities explained that setting a formal target for this would require changing legislation, which could take time. They will consider the staff’s recommendation to appendix). Staff also indicated that it would be advisable to supplement the MTFF by a ceiling on expenditure growth, especially since the debt ceiling is non-binding and formal adoption of a target for the non-mineral balance may take time.

• A well-managed natural resource fund (NRF) could help safeguard surpluses and accumulate financial assets as future mining projects come on stream. Staff stressed that an NRF should be fully integrated into the budget, with no independent spending authority. The authorities agreed that, since new large mining projects are not expected to come on stream in the near term, priority should be given to establishing an MTFF. Staff also pointed to the need to settle external arrears before starting asset accumulation in an NRF, and supported plans to normalize relations with creditors.

The mission urged better assessment of fiscal risks. Available public debt statistics cover only debt contracted or guaranteed by the central government. In addition, some state-owned enterprises are legally allowed to borrow without government guarantee, and reporting on their operations is incomplete. The mission recommended improving monitoring mechanisms and reporting their operations in budget documents. The authorities noted that cases of public enterprises borrowing with no government guarantee had been very rare, and that for external loans, creditors consistently asked for a government guarantee even for financially sound enterprises. They explained that a ministry of finance unit was already charged with monitoring public enterprises, although they were not yet in a position to comprehensively report these entities’ operations in budget documents.

Source:Suriname: 2008 Article IV Consultation - Staff Report


Related;
Suriname - Key Indicators

Governance in Suriname- IADB

Some IADB Projects in Suriname
Program for the Modernization of the Surinamese Tax Administration
Public Financial Management Assessment

Support for the Public Sector Investment System

Design of Pension Reform

Strengthening of Public Sector Management-USD 6,250,000
Road Map for Public Sector Reform
Institutional Strengthening of Debt Management
Advisory Services to the Central Bank of Suriname