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Managing Financial Crises

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  • G. Russell Kincaid
  • Charles Collyns
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    Abstract

    This paper seeks to draw lessons from the IMF’s experience in handling financial crises around the globe over the past ten years that are relevant to the challenges faced by countries in Latin America, especially in the wake of the recent crisis in Argentina. Experience suggests that there is no quick or easy fix in the face of a wide-ranging crisis involving both acute external financing pressures and rapidly changing asset prices that undermine financial stability and household and corporate balance sheets. In the end, effective solutions depend on developing a comprehensive strategy combining the full range of fiscal, monetary, financial system, and debt policy instruments. Recent experience with crises has had important implications for the IMF’s work in assessing crisis vulnerabilities. IMF surveillance work has been strengthened and a more objective framework has been developed for assessing debt sustainability, and this approach continues to be refined.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Occasional Papers with number 217.

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    Length: 128
    Date of creation: 10 Apr 2003
    Date of revision:
    Handle: RePEc:imf:imfocp:217

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    Keywords: Latin America; monetary policy; inflation; banking; debt restructuring; central bank; foreign exchange; banking system; bank runs; fiscal policy; crisis countries; bonds; exchange rate; public debt; insolvency; fiscal adjustment; sovereign debt; external debt; debt sustainability; banking crisis; contagion; current account; inflation targeting; banking sector; currency board; fiscal tightening; recapitalization; monetary fund; fiscal impulse; debt dynamics; currency crises; asian crisis; foreign exchange market; bond; banking crises; domestic currency; debt management; open market operations; banks? balance sheets; debt crises; bank deposits; debt ratio; export volume; domestic debt; government debt; short-term debt; discretionary fiscal policy; insolvency law; fiscal position; currency crisis; price stability; banking systems; bank restructuring; fiscal stance; private creditors; currency debt; financial crises; sovereign debt restructuring; balance sheet effects; debt crisis; banking sectors; balance of payments; banking sector problems; total external debt; debt reduction; foreign debt; monetary aggregate; money demand; monetary aggregates; monetary policy framework; post-crisis period; sovereign debts; insolvency system; present value; bank of korea; bank lending; bank of thailand; bank of indonesia; foreign currency debt; competitiveness; financial markets; real interest rates; debt service; banking supervision; external financing; central banks; deposit insurance; sovereign bonds; bank law; public sector debt; bank run; macroeconomic stabilization; macroeconomic policies; fiscal responsibility; fiscal sustainability; fiscal transparency; bank financing; debt sustainability analysis; debt relief; current account adjustment; debt exchange; financial system; bank for international settlements; exchange rate regimes; net exports; tax system; inflation target; average inflation; high inflation; high interest rates; budget management; exchange rates; intergovernmental fiscal; fiscal responsibility law; fiscal management; tax reform; fiscal relations; intergovernmental fiscal relations; fiscal policy formulation; secured creditors; money base; formal insolvency system; money supply; inflation objective; real value; monetary base; cash flow; formal insolvency; financial institutions; insolvent banks; eurobonds; eurobond; brady bonds; state bank; debt structure; capital account liberalization; current account deficits; bank loans; crisis country; bank credit; working capital; debt exchanges; debt default; low liquidity; pre-crisis; government securities; connected lending; corporate sector; deposit guarantees; reserve requirements; financial crisis; floating exchange rates; exchange rate regime; fiscal balance; floating exchange rate; exchange rate depreciation; dollarization; liquidity crises; tax administration; fiscal activities; fiscal vulnerability; budget process; quasi-fiscal activities; probability of default; bank recapitalization; currency mismatches; bank liquidity; international capital; market debt; public debt management; banks? assets; bank of england; bank securities; macroeconomic stability; hedge; international financial system; bondholders; cross-border insolvency; international capital markets; unsecured creditors; export sector; export orientation; early warning system; crisis episodes; bank insolvency; crisis resolution; amount of debt; net present value; debt-equity; export expansion; export growth; fiscal solvency; fiscal contractions; tax revenue; tight monetary policy; tax structure; public finance; budget systems; taxation; fiscal impact; expenditure programs; government bonds; bond issues; denominated bond; counselor; inflationary pressures; money market; monetary financing; price level; monetary impact; fiscal policies; debt service payments; fiscal aggregates; fiscal policy response; coverage of debt; international bonds; bond issue; international banks; fiscal risks; fiscal imbalances; fiscal loosening; tax policy; debt-management strategy; tax base; fiscal discipline; fiscal targets; regulatory forbearance; going concern; bank supervision; effective insolvency; model law on cross-border insolvency; efficient insolvency; private bank; debt situation; debt data; government deficits; debt market; real exchange rate; dual exchange rate; debt burden; exchange controls; private external debt; liquidity crisis; reserve bank; currency boards; excess demand; debt problems; excess liquidity; banking operations; bank assets; insolvency procedures; bankruptcies; law on cross-border insolvency; insolvency proceedings; bankruptcy law; bank balance sheets; banking regulation; debt servicing; asset management company; debt contracts; bank credibility; bank creditors; excessive borrowing; central bank credibility; bankrupt; bank liabilities; capital markets; fiscal adjustments; bank regulators; domestic liquidity; crisis management; external shocks; private banks; external debt service; debt problem; bank intermediation; budget rigidities; fiscal policy flexibility; debt structures; currency composition; tax bases; fiscal rules; government spending; debt managers; medium-term fiscal sustainability; ratio of debt; tax rates; fiscal surplus; tax compliance; quality of debt management; public expenditure; fiscal surpluses; fiscal deficits; fiscal policy responses; fiscal balances; fiscal stress; fiscal target; expansionary fiscal contractions; fiscal pressure; fiscal variables; fiscal measures; tax evasion; prudent fiscal policies; expenditure policy; fiscal deficit; fiscal information; fiscal activity; external public debt; fiscal performance; fiscal operations; primary deficit; reduction in tax; external debt management; severe fiscal imbalances; fiscal implications; net debt; fiscal situation; sovereign debt crises; hedging; guaranteed bonds; access to international capital; individual bond; financial resources; private sector creditors; interest rate risk; long-term bonds; debt-monitoring system; indexed bonds; convertible bonds; savings deposits; international finance; derivative; bond holders; domestic financial system; domestic public debt; moral hazard; domestic financial institutions; term bonds; deposit freezes; international finance corporation; bank privatization; bank debt; effective insolvency system; bank negara malaysia; insolvency professionals; insolvency regime; bank losses; insolvency cases; systemic banking crisis; bank nationalization; insolvency systems; banking system assets; insolvency law reforms; insolvency laws; banks? loan; bank shareholders; bank capitalization; efficient insolvency law; insolvency procedure; eurobond yields; banking regulations; general insolvency law; nonperforming loan; corporate insolvency; balance sheet insolvency; bank debts; foreign exchange exposure; discharge; public borrowing; external liquidity; prudential regulation; capital base; bank equity; debt policies; foreign exchange restrictions; exchange rate adjustment; bank reports; foreign debts; bank exposure; currency mismatch; bankrupt banks; transitional government; interbank market; bank research; crises episodes; external finance; bank loan; reserve requirement; central banking; deposit insurance scheme; current account deficit; fixed exchange rate regime; exchange restrictions; foreign exchange transactions; government finance; exchange rate peg; nominal exchange rate; official exchange rate; exchange rate path; exchange rate overshooting; bank independence; exchange transactions; exchange rate system; currency appreciation; bank accounts; exchange rate policies; bank claims; exchange rate pass; fixed exchange rate; real effective exchange rate; exchange rate management; public finances; international debt; bank reserves; decentralization; bank closures; private credit; regulatory approach; debt maturities; current account surpluses; long-term debt; basel accord; public debts; debt statistics; savings bank; debt strategy; public sector securities; debt-service obligations; debt overhang; bank capital; bank performance; banks? liabilities; state enterprise; private debt; low debt; liquidity variables; liquidity injections; external liabilities; public borrowers; bank rediscounts; bank transactions; long-term loans; current account balance; banking reforms; liquidity injection; bank program; domestic saving; debt stocks; deposit guarantee; financial liberalization; credit boom; inflation-targeting; recession; systemic crisis; deflationary effect; monetary authorities; annual inflation; monetary aggregate targets; nominal interest rates; increase in interest rates; money markets; monetary expansion; domestic money markets; inflation forecasts; monetary targets; discount rate; monetary control; monetary policy frameworks; stable prices; monetary regime; expenditure reform; fiscal indicators; budget constraints; fiscal positions; expansionary fiscal; fiscal behavior; tax avoidance; fiscal reform; fiscal federalism; primary fiscal balance; liquidity of banks; financial deepening; limited deposit insurance; payments crisis; rating agencies; crisis probabilities; corporate sector weaknesses; recessions; financial restructuring; balance of payments crisis; floating exchange rate regime; asian financial crisis; exchange rate level; effective exchange rate; exchange rate volatility; early warning systems; financial contagion; share of exports; money market interest rate; monetary policies; domestic investment; reer; monetary stance; monetary policy strategy; contractionary monetary policy; nominal interest rate; inflationary impact; monetary aggregate target; monetary policy decisions; real exchange rates; capital flows; crisis in emerging markets; balance sheets;

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    Cited by:
    1. Claudio M. LOSER, 2004. "External Debt Sustainability: Guidelines For Low- And Middle-Income Countries," G-24 Discussion Papers 26, United Nations Conference on Trade and Development.
    2. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
    3. Luc Laeven, 2011. "Banking Crises: A Review," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 17-40, December.
    4. Sanjeev Gupta & Carlos Mulas-Granados & Emanuele Baldacci, 2009. "How Effective is Fiscal Policy Response in Systemic Banking Crises?," IMF Working Papers 09/160, International Monetary Fund.
    5. Albert Jaeger & Ludger Schuknecht, 2007. "Boom-Bust Phases in Asset Prices and Fiscal Policy Behavior," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 43(6), pages 45-66, November.
    6. Bjoern Rother & Ivetta Hakobyan & Monica Baumgarten de Bolle, 2006. "The Level and Composition of Public Sector Debt in Emerging Market Crises," IMF Working Papers 06/186, International Monetary Fund.
    7. Barbara Stallings, 2004. "Financial Liberalization, Crisis, and Rescue: Lessons for China from Latin America and East Asia?," IDB Publications 48078, Inter-American Development Bank.
    8. Charles Adams, 2010. "The Role of the State in Managing and Forestalling Systemic Financial Crises: Some Issues and Perspectives," Working Papers id:2923, eSocialSciences.

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