Coping with the Crisis: Policy Options for Emerging Market Countries

By Christopher W. Crowe, Jonathan David Ostry, Jun I Kim, Marcos d Chamon, Atish R. Ghosh

April 23, 2009

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Christopher W. Crowe, Jonathan David Ostry, Jun I Kim, Marcos d Chamon, and Atish R. Ghosh Coping with the Crisis: Policy Options for Emerging Market Countries, (USA: International Monetary Fund, 2009) accessed November 21, 2024

Summary

This chapter outlines policies to help solve the debt overhang and bring about recovery in both groups of countries. The current financial turmoil is confronting emerging market economies with two shocks: a ‘sudden stop’ of capital inflows resulting from the global deleveraging process, and a collapse in export demand associated with the global slump. A key ingredient appears to be greater official financing to expand the ‘policy space’ available to emerging market economies (EME) to pursue supportive macroeconomic policies—including, in countries with large debt overhangs, by helping to meet the fiscal outlays associated with the resolution of that overhang. An important first step is to ensure an adequate framework to facilitate rapid debt workouts. Debt restructuring mechanisms can provide greater scope for monetary easing by reducing the negative repercussions of exchange rate depreciation on unhedged balance sheets. Depending on the available fiscal space, expansionary fiscal policy should also be deployed to support economic activity.

Subject: Banking, Currencies, Exchange rates, Financial statements, Fiscal policy, Foreign exchange, Money, Public financial management (PFM)

Keywords: Adverse selection, Capital account, Currencies, East Asia, Emerging market country, Exchange rates, Financial statements, Foreign currency, Global, Hard-won gain, Output gap, SPN

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Staff Position Note No. 2009/008
Stock No:

SPNEA2009008
ISBN:

9781462323296
ISSN:

2617-6742

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