IMF Weekend Read

 

Dear MARIA,   In today's edition, we highlight: Industrial Policy Latin America’s Inflation Test  Africa’s Growth Model Geoeconomics INDUSTRIAL POLICY Industrial Policy Can Work, When Done Right Governments are turning to industrial policy in response to national security and geopolitical issues, but the payoff depends on how well they target support to specific firms and industries, IMF economists write in a blog.   A New Industrial Policy Observatory dataset, which the blog authors developed with the Global Trade Alert, an independent organization that tracks trade and investment policies, shows a sharp acceleration in measures since 2020, when COVID-19 unleashed a wave of government action. Unlike previous crises, many of those measures remained in place after the emergency passed.   The data shows industrial policy can boost competitiveness, but mostly in sectors that are already strong, and often only temporarily. The bigger payoff comes from reforms that improve institutions and regulations, which can raise output in lagging industries by up to 10 percent over a few years—about five times the gains typically seen from industrial policies. Read the blog OIL SHOCK Latin America Passes Inflation Test As the conflict in the Middle East drives up oil prices, Latin America is better prepared to rein in inflationary pressure than in the past. Inflation expectations—what people think will happen to prices—remain firmly anchored across the region, new IMF research shows.   This means the current spike in oil prices is less likely to trigger sustained inflation, giving policymakers more room to maneuver, including potential interest rate cuts. Reforms introduced 25 years ago, spanning inflation targeting, central bank independence, and fiscal discipline, have paid off, helping the region navigate today’s shocks, the authors note. Read the blog SUB-SAHARAN AFRICA Pro-Enterprise Reforms Could Lift Growth Sub-Saharan Africa could boost economic output by about 20 percent within a decade with reforms to propel private sector-led growth, IMF economists write in a Country Focus article. Reforms to governance, business regulation, and market openness would lift living standards and help the region narrow the income gap with other developing economies, the authors say.   Despite strong performance in a handful of countries—including Benin, Côte d’Ivoire, Ethiopia, Rwanda, and Uganda—growth across the region has been too weak to deliver meaningful income convergence. Past growth spurts—often fueled by commodity booms or inefficient public investment—faded fast.   “With debt high, borrowing costly, and aid falling, the state can no longer be the main engine of growth. The region needs more private investment, backed by broad, business-friendly reforms,” the authors conclude. Read the article CURRENCY DOMINANCE The Dollar Is Still King, For Now The US dollar remains the world’s dominant reserve currency, but a shift is underway as Australia, Canada, and Korea’s currencies gain ground.   In a recent IMF podcast, Barry Eichengreen, a professor at the University of California, Berkeley, and IMF economist Chima Simpson-Bell point to a gradual decline in the dollar’s share of global reserves, from more than 70 percent at the start of the century to below 60 percent today, alongside rising interest in alternatives.   Three quarters of the market share that the dollar has lost has been gained—not by the euro or China’s renminbi—by non-traditional reserve currencies of small, open, well-managed economies, Eichengreen said.   The pair’s research also shows politics increasingly plays a role in the trend, alongside more traditional economic factors. And that is potentially important in a world of competing blocks where geoeconomics matters more than ever. Listen to the podcast FINANCE & DEVELOPMENT A Peek Into Our June Issue As tariffs, sanctions, and supply chains become tools of statecraft, a new global order is taking shape. Read how economic thinking must evolve to account for these forces in Finance & Development’s new issue, Geoeconomics and the Return of Economic Statecraft, published next Tuesday.   Mark your calendars and check it out here. We take a deep dive into how nations pursue security, growth, and influence in a more contested world.   Among our cover stories:   Understanding Geoeconomics | How new economics tools explain global power dynamics | Christopher Clayton, Matteo Maggiori and Jesse Schreger   Trade Cooperation in an Age of Geopolitics | Geopolitical rivalry does not end the need for trade cooperation, but the multilateral system must adapt | Aaditya Mattoo, Michele Ruta and Robert W. Staiger   Also in the magazine:   Keynes for Our Times | Keynes’s moral philosophy and embrace of uncertainty can guide economics, finance, and AI‑driven markets today | Robert Skidelsky   Economics for the Real Economy | Trade theory must catch up with tariffs, industrial policy, and the costs of globalization | Jamieson Greer   Subscribe for free here to receive a copy of the magazine every three months for a new issue filled with brewing economic and financial policy debates and analysis. Thank you very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.  Jacqueline Deslauriers Editor | IMF Weekend Read  jdeslauriers@imf.org Stay connected with the International Monetary Fund:       This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431