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Transcript
CURRENT FINANCIAL
TURMOIL: Some key issues
Guillermo A. Calvo
Research Department
Inter-American Development Bank
New York, September 10, 2001
GLOBALIZATION VS. MORAL HAZARDS
What Hazard?
Moral? Hard to make a strong case:
Capital flows tended to contract after Tequila
and ensuing crises.
FDI took a bigger role after crises.
Globalization? A case could be made:
unprecedented flows starting in 1989
sharp contraction after crises (Sudden Stop)
In 1990-2000 portfolio flows to EMs amounted
to US$ 478 billion, which may be heading for
the Exit in the next crisis, globalizing it.
Net Capital Flows to
Emerging Markets
250
financial globalization starts--->
200
billion US$
150
100
50
0
Tequila-->
-50
75
80
Total Emerging Markets
Source: WEO, IMF, May 2001
85
90
95
Western Hemisphere
00
Foreign Direct Investment
to Emerging Markets
250
200
billion US$
150
100
50
0
-50
75
80
85
Total
Source: WEO, IMF, May 2001
90
FDI
95
00
Portfolio Flows to Emerging
Markets: A dying species?
250
200
financial globalization starts--->
billion US$
150
100
50
0
Tequila-->
-50
75
80
85
Portfolio
Source: WEO, IMF, May 2001
90
Total
95
00
ARGENTINA
Argentina: Country Risk
EMBI Plus Sovereign Spread, b.p.
Cavallo becomes Minister
1900
1700
Beginning of Bush Administration
1500
1300
Financial Package
1100
900
700
500
9/2/01
6/2/01
3/2/01
12/2/00
9/2/00
6/2/00
3/2/00
12/2/99
9/2/99
6/2/99
3/2/99
12/2/98
9/2/98
6/2/98
3/2/98
12/2/97
9/2/97
6/2/97
300
Argentina: What’s behind
sharp deterioration?
Reaching debt/GDP ceiling and revealing
no political will for fiscal adjustment, e.g.,
Lopez Murphy's cameo appearance?
Expansionary monetary policy?
Pou's departure and currency basket?
Fiscal devaluation?
International factors
Self-fulfilling bad equilibrium?
No-bailout message from Treasury?
Global recession?
Argentina: Is growth likely
to resume?
Would zero deficit be enough to lower
interest rates?
Is a big G7 package necessary?
Should Argentina, Brazil and Chile engage
in greater exchange-rate harmonization?
Would involuntary debt restructuring
help? Should the G7 be involved. . .a
Brady II?
Crisis and Contagion
Is contagion likely?
What countries will be involved: Brazil,
Peru. . .?
What would be the mechanics of
contagion?
Margin calls?
Bank runs in other dollarized economies?
G7 involvement or lack of it?
Copycats if Argentina defaults?
CURRENT FINANCIAL
TURMOIL: Some key issues
Guillermo A. Calvo
Research Department
Inter-American Development Bank
New York, September 10, 2001