Coping with the Crisis: Policy Options for Emerging Market Countries

Author: Mr. Christopher W. Crowe, Mr. Jonathan David Ostry, Mr. Jun I Kim, Mr. Marcos d Chamon, and Mr. Atish R. Ghosh

Given the global dimension of the crisis, country policies to attract financing are likely to be less effective: although some emerging market economies were ripe for crisis, in many cases, money is leaving owing to global rather than to country fa

Volume/Issue: Volume 2009 Issue 008

Publication date: April 2009

ISBN: 9781462323296

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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Banks and Banking , Money and Monetary Policy , Public Finance , SPN , foreign currency , capital account , emerging market country , output gap , hard-won gain , adverse selection , Exchange rates , Currencies , Financial statements , Global , East Asia

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Cross-Cutting Themes in Employment Experiences during the Crisis

Impact of Regulatory Reforms on Large and Complex Financial Institutions

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.