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Transcript
Some Lessons From Recent
Financial Crises
With Special Reference to Argentina (2001/2)
Mario I. Blejer
Director
Centre for Central Banking Studies
Bank of England
[email protected]
© Bank of England
The Bank of England does not accept any liability for misleading or inaccurate information or omissions in the information provided.
1
Monthly Gross Domestic Product
seasonally adjusted (Jan 98 = 100)
105.0
99,0
Dec 99
100.0
98,3
Dec 00
102,3
Jun 98
95.0
94,6
Jul 99
90.0
82.2
Nov 02
85.0
80.0
Source: CEA-UCEMA en base a datos del INDEC.
Nov-02
Sep-02
Jul-02
May-02
Mar-02
Jan-02
Nov-01
Sep-01
Jul-01
May-01
Mar-01
Jan-01
Nov-00
Sep-00
Jul-00
May-00
Mar-00
Jan-00
Nov-99
Sep-99
Jul-99
May-99
Mar-99
Jan-99
Nov-98
Sep-98
Jul-98
May-98
Mar-98
Jan-98
75.0
2
The Nature of the Argentina Crisis
The Argentine crisis was both a CURRENCY
and a BANK crisis – Inter-related but
caused by a number and combination of
different factors
Analytically, better to distinguish between
them in an explicit manner
3
Lessons from the Banking Crisis
1.
The Potential Fragility of Financial
Institutions
2.
The Negative Consequences of
Excessive Government Intervention
3.
The Importance of Liquidity
Management
4
4.
The Role of Foreign Banks
5.
The “Currency” Problem
6.
Capital Flows and Capital
Controls
5
1.
The Potential Fragility of
Financial Institutions
The Argentine experience proves that solid
and solvent financial structures could
deteriorate quickly.
This is particularly true in the face of
inadequate interventions, distorted
incentives and misguided policies.
6
The fact is that weak financial sectors are
not necessarily crisis prone. Financial
crises have been generated, in most
instances, by inconsistent policies and by
an unstable macroeconomic
environment.
In this context one need to rethink the
emphasis put on the “enforcement” of
conventional standards and codes vis-àvis inappropriate policy actions.
7
The Argentine Bank Run


Between March 2001 and July 2002,
Deposits fell from U$S 85b. to U$S 15b.
Domestic Credit to the private sector fell
from U$S 54b. to U$S 14b. and continued
to fall until the end of 2003.
8
The Argentine Bank Run: The Evolution
of Private Deposits (2001-02)
“Corralito”
80
75
70
65
Devaluation
and
Pesification
60
55
50
30-Sep
21-Dec
13-Mar
3-Jun
24-Ago
14-Nov
4-Feb
27-Apr
18-Jul
9
Credit to Private Sector
Billion ARG $
50
Loans to Private Sector Evolution
45
40
35
30
25
20
1-Feb-02 15-Mar-02 8-May-02 20-Jun-02 2-Aug-02 16-Sep-02 29-Oct-02 11-Dec-02 24-Jan-03 7-Mar-03
Nominal Stock
Real Stock
10
While the currency board problems
and the consequent exchange
rate uncertainty played a role, the
Argentine banking crisis was
largely caused by the
government “abuse” of the
banks rather than by a weak or
insolvent banking sector
11
2. The Negative Consequences
of Excessive Government
Intervention
(a) Financing the Public Sector and the
“Crowding Out” Effect
(b)
Excessive Public Sector involvement
and Political pressures
12
ARGENTINA: Private Sector assets are
displaced by Public Sector assets in bank’s
balance sheets
100%
80%
$ 76 MM
60%
40%
$ 43 MM
20%
0%
Dec-99
May-00
Oct-00
Mar-01
Public Sector
Aug-01
Jan-02
Jun-02
Private Sector
13
The increasing banking exposure to
the public sector was accompanied
by:
1. a rapid decrease in deposits
and
2. a sharp increase in country risk
14
220
110
216
Public Sector Loans (%)
100
180
100
151
140
100
90
Deposits
104
80
80
EMBI Index
71
60
70
dic-98
jun-99
dic-99
jun-00
Indice EMBI Argentina
dic-00
jun-01
Crédito al Sector Público / Patrimonio Neto (en %)
Depósitos Sector Privado - Base dic2000 = 100 (2º eje)
dic-01
15
Fiscal Deficits
Argentina 1975-2001
2
0
-2
-4
Convertibility Period
-6
-8
-10
-12
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
-14
16
The Use of Privatization Receipts to Reduce the
Deficit
2
1
Privatization
Revenue
0
-1
-2
-3
-4
-5
Total Deficit
-6
-7
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
17
Interest Payments/GDP
20
15
10
5
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
18
Dic-02
Sep-02
Jun-02
Mar-02
Dic-01
Sep-01
Jun-01
Mar-01
Dic-00
Sep-00
Jun-00
Mar-00
Dic-99
Sep-99
Jun-99
Mar-99
Dic-98
Sep-98
Jun-98
Mar-98
Dic-97
Primary Expenditures as % of GDP
(cumulative 12 months)
19,5%
19,0%
18,5%
18,0%
17,5%
17,0%
19
Dic-02
Sep-02
Jun-02
Mar-02
Dic-01
Sep-01
Jun-01
Mar-01
Dic-00
Sep-00
Jun-00
Mar-00
Dic-99
Sep-99
Jun-99
Mar-99
Dic-98
Sep-98
Jun-98
Mar-98
Dic-97
Primary Expenditures as % of GDP
(cumulative 12 months)
19,5%
19,0%
18,5%
18,0%
17,5%
17,0%
20
Capital Flow s and Economic Activity
(Accumulated 4 quarters - U$Sm. GDP Cyclical Component)
Capital Flows
Private Sector
8%
15.000
6%
10.000
4%
5.000
0
2%
-5.000
0%
-10.000
-2%
-15.000
-4%
GDP Growth
-6%
-20.000
Russian Crisis
-25.000
IV 01
IV. 00
IV. 99
IV 98
IV 97
-35.000
IV 96
-10%
IV 95
-30.000
IV 94
-8%
21
The Deterioration in the Bank’s Balance Sheet
December 2001– December 2002
180
160
Loans to Private Sector
140
120
100
80
45%
60
40
21%
17%
54%
20
0
Dec 01
Dec 02
Loans to the Public Sector
22
Excessive Public Sector
involvement and Political pressures
2(b)
-- Government influence on credit allocation
(price and quantities) of private banks
-- Regulation preventing banks from
engaging in profitable banking activities
-- Interest rate caps and high reserve
requirements
23
3. The Importance of Proper
Liquidity Management
Availability of liquidity is a crucial
element in the prevention and the
management of financial crises
LOLR does not guarantee stability but
its absence accelerates the erosion
of confidence
24
The central bank provided rediscounts to illiquid
banks and financed about 1/3 of the deposit drop
Accumulated evolution (31-Jan-02 al 24-Jul-02)
-In billion of pesos-
25
20
15
10
5
0
31-Ene 17-Feb
Loans
6-Mar
23-Mar 9-Abr
Assistance
26-Abr 13-May 30-May 16-Jun
Bank Reserves fall
3-Jul
20-Jul
Deposits fall
25
Initially deposit withdrawals continued
Private Sector Deposits - Year 2002
In million of pesos Feb
1000
Mar
Abr
May
Jun
Jul
160
0
-235
-1000
-340
-823
-810
-2000
-3000
-998
-1274
-1230
-2609
-4000
-5000
-4335
-4378
-4526
Deposits minus preventive measures
Preventive measures
26
However, the trend reversed after four
months
Private Sector Deposits - Year 2002
In million of pesos Feb
1000
Mar
Abr
May
Jun
Jul
160
0
-235
-1000
-340
-823
-810
-2000
-3000
-998
-1274
-1230
-2609
-4000
-5000
-4335
-4378
-4526
Deposits minus preventive measures
Preventive measures
27
Private Sector Deposits
Pesification
80
75
70
65
60
Devaluation
55
50
45
Recovery
40
01-Oct-01
27-Nov-01
23-Jan-02
21-Mar-02
17-May-02
13-Jul-02
18-Oct-02
04-Nov-02
31-Dec-02
28
Millones de Pesos
1,500
Central Bank Net Liquidity
Assistance - Monthly
61%
1,000
90%
60%
52%
500
29%
31%
29%
30%
29%
0
0%
-500
-30%
Ene
Feb
Mar
Abr
May
Asistencia Neta Mensual
Jun
Jul
Ago
Sep
Oct
Nov
Asistencia/Salida de Depósitos
29
4. The Role of Foreign Banks
-- Do they reduce financial
vulnerability?
-- Can they provide, implicitly, LOLR
function?
30
5. The “Currency” Problem
31
Financial vulnerability arises from the
public’s reticence to use domestic
currency as a store of value
-- Trade-off between shallow financial
intermediation and financial
dollarization and the risks of balance
sheet mismatches
-- The “original sin” is not such but just
a corollary of the currency problem
32
If full dollarization is not an option, the
policy question to reduce
vulnerabilities is how to solve the
“currency” problem
-- Macroeconomic and Institutional
credibility and – in the transition:
Indexation
-- “Pesification” a la Argentina
33
”Fear of floating” due to:



Risk of excessive real appreciation (develop
export sector)
Risk of excessive real depreciation (liability
dollarization)
Underdeveloped hedging markets
34
“Fear of floating” affects:



Optimal degree of FX volatility
Optimal accumulation of international
reserves (corollary or policy objective?,
trade or financial considerations?)
Undermines central bank credibility
35
6. Capital Flows and Capital
Controls
Does capital account integration reduce
financial vulnerability?
Long run desirability vs. short run,
transitional, risks
36
Capital controls (Chilean style)



Only work for inducing change in
composition
Not useful to avoid real exchange rate
appreciation
Might end up reducing FDI
Capital controls and crisis management
37
But, what have we learned then?




Strong prudential regulation is important
(prevent currency mismatches and risky
balance sheet position)
However, sound fiscal policies and the
prevention of public sector exposures
are absolutely necessary conditions
Develop capital markets (specially
hedging)
NO SHORCUTS for stable rules of the
game and proper institutional
development
38