IMF Weekend Read

 

Dear maria, In today's edition, we highlight: Monetary policy lessons from past crises Financial systems and climate risks Retreating house prices Inequality and credit card rewards

MONETARY POLICY Central Bankers Must Learn Lessons From Past Crises (Credit: Adobe Stock / IMF) The global inflation surge that abruptly ended decades of moderating price gains came at a unique confluence of crises, Gita Gopinath, the IMF’s First Deputy Managing Director, writes in the latest issue of F&D. What lessons does this era offer for monetary policy? We might begin, she writes, with the lessons from the pandemic and war that are relevant for monetary policy, even if the world eventually moves back to an environment of low interest rates and low inflation. Most economists missed the inflation surge, and we need to understand why, and how monetary policy may have to change going forward. “But some crisis effects—high inflation, supply chain disruptions, greater trade barriers—may persist much longer, or intensify. That could challenge macroeconomic stability around the world, especially in emerging markets. How can we avoid this?” The more palpable risk of rapid inflation means it’s crucial to revisit the robustness of strategies such as running the economy hot and seeing supply shocks as temporary, Gopinath writes. "These strategies offer benefits, but also raise risks to price stability." Read the article

FINANCE & DEVELOPMENT New Directions for Monetary Policy The March edition of F&D Magazine focuses on New Directions for Monetary Policy. Authors include Gita Gopinath, Raghuram Rajan, Markus Brunnermeier, Masaaki Shirakawa, Christoffer Koch, Greg Kaplan, Giancarlo Corsetti, Michael Weber, Claudio Borio, and many more.

While the currency values of today’s economic powerhouses help maintain global financial stability, the currency systems in the 19th century were tied to precious metals and France played the stabilizing role. In the early 1800s, most countries tied their currencies to silver or gold, but Napoleon tied the French franc to both, which sparked the era of global bimetallism. In this podcast, IMF economist Johannes says this almost-forgotten episode shows that international cooperation is essential for a stable global monetary system.

CAPACITY DEVELOPMENT Climate Change Poses Financial Risks (Credit: Peter Gallagher/Unsplash) Climate change could affect the safety of individual financial institutions, impact the sustainability of vital financial services, and carry broad macro-financial stability implications, Tobias Adrian, Director of the IMF’s Monetary and Capital Markets Department, said in a speech in the Swiss city of Basel. “As climate change increasingly influences financial risks and shapes institutional and sector-wide vulnerabilities, enhancement of the risk assessment and prudential frameworks is a critical component of policy responses,” Adrian told a conference on capacity development in the financial sector organized by the IMF and Bank for International Settlements. Adrian added that webinars, virtual workshops, and online training would remain an important part of the Fund’s capacity development toolkit even as people are once again able to meet in person. Read an earlier blog by Adrian and co-authors to learn more about how policymakers can help to manage the climate risks impacting economies and financial systems.

Global housing markets are retreating after years of steady gains. The Chart of the Week shows widespread declines in inflation-adjusted housing prices for two-thirds of the countries with recent data from the Organisation for Economic Co-operation and Development. The moves underscore how housing markets are adjusting to rising interest rates as central banks try to contain inflation. How long the decline in prices continues will depend on whether the rate hikes by central banks have already curtailed inflationary pressures. See the interactive chart

Weekly Roundup SILICON VALLEY BANK IMF Welcomes Decisive Action The IMF has told media organizations that it welcomes the decisive action taken by authorities in the United States following the collapse of Silicon Valley Bank and another mid-sized lender and that it is monitoring the implications for financial stability. “The IMF welcomes the decisive steps taken by the Federal Reserve, FDIC, and US Treasury to address the systemic risks arising from recent bank failures in the US,” the Fund told Reuters. “IMF staff are following the evolving situation closely and assessing potential global financial stability implications.” UKRAINE Progress Towards Fund Program An IMF mission has held policy discussions with the Ukrainian authorities on their request for a Fund-supported program in the Polish capital of Warsaw. In a statement, Vahram Stepanyan, the IMF’s resident representative to Ukraine, said discussions were productive and good progress has been made towards agreement on a set of policies that could underpin a program. “Building on this progress, staff and the authorities expect to conclude the discussions in the coming days.” The discussions came less than a month after IMF Managing Director Kristalina Georgieva praised Ukraine’s strong performance under its monitoring program during a visit to Kyiv. ARGENTINA Stronger Action Needed To Safeguard Stability Argentina's authorities have reached an agreement with IMF staff on the fourth review under the country’s Extended Fund Facility. The agreement, which is subject to approval by the IMF’s Executive Board, which is expected to meet in the coming weeks, will provide access to about $5.3 billion. “Against the challenges of an increasingly severe drought, a stronger policy package is necessary to safeguard macroeconomic stability, address rising inflation and recent policy setbacks, as well as ensure achievement of underlying program objectives,” a statement said. AFRICA Political Economy's Importance Political economy should be top of mind when undertaking economic reforms, Georgetown professor Ken Opalo said in an online Africa Perspectives conversation with the director of the IMF’s African Department, Abebe Aemro Selassie. They agreed that it is paramount to understand the country-specific political, institutional and economic context for reforms to yield fruitful outcomes. STAFF PAPER Climate Change Costs Are Underestimated A new IMF staff paper finds that the economic cost of temperature increases since 2000 has been substantially underestimated because the propagation of weather shocks through production networks has been overlooked. The study examines the effect of weather fluctuations and extreme weather events on sectoral economic production and the transmission of weather shocks across sectors, countries and over time. While agriculture is the most harmed sector, sectors at later stages of the supply chain also suffer. STAFF PAPER Rewards Programs Worsen Inequality Credit cards with reward programs are responsible for redistributing $15 billion per year from the “have-nots” to the “haves,” according to a new IMF staff paper. Money goes from less to more educated people, poorer to richer, and high to low minority areas, widening existing disparities. Reward cards induce more spending, leaving so-called “naïve” consumers with higher unpaid balances. Banks incentivize the use of reward cards by offering lower interest rates than on comparable cards without rewards.

BACK TO BASICS What is a central bank?

What exactly do central banks do? Our latest Back to Basics video explains their key responsibilities and why they’re so important to our everyday life.

MARK YOUR CALENDAR

MARCH 21, 8 AM EST African Fiscal Forum IMF Managing Director Kristalina Georgieva will discuss social safety nets with European Commissioner for International Partnerships Jutta Urpilainen, Sierra Leone’s Minister of Finance Sheku Ahmed Fantamadi Bangura, and Zambia’s Minister of Finance Situmbeko Musokotwane at the start of the African Fiscal Forum. Watch on IMF Live

Thank you again 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.

Nick Owen Editor IMF Weekend Read nowen@IMF.org

NATO latest news

 

20,000 NATO troops trained to defend Norway in exercise Joint Viking Exercise Joint Viking, which ran until 16 March 2023, is a military winter exercise held in Norway every two years. Its main purpose is to demonstrate the defence of Norway and of NATO's northern flank. It involves air, land and maritime assets from NATO Allies and partners. Exercise Joint Viking provides opportunities to enhance the readiness of deployed units and their ability to work effectively together, in arduous winter conditions and across different operational domains. As part of the exercise, Dutch Marines docked at the port of Malangen in the north-western part of Norway. Troops from Norway and the United Kingdom took on the role of the defending forces while Dutch and German troops acted as aggressors. Click here to download the b-roll. Footage includes various shots of Dutch Marines performing an amphibious landing and troops from Norway and the United Kingdom conducting defensive operations. Press Release 17 March 2023 NATO Secretary General to visit Norway On Friday 17 March 2023, the NATO Secretary General, Mr. Stoltenberg, will travel to Bergen, Norway. During his visit, the Secretary General will meet the Prime Minister of Norway, Mr. Jonas Gahr Støre, the President of the European Commission, Mrs. Ursula von der Leyen, and Equinor CEO, Mr. Anders Opedal. ± 11.45 (CET)  The NATO Secretary General, the President of the European Commission, Mrs. Ursula von der Leyen, and Equinor CEO jointly meet the press. The press point will be streamed live on the NATO website. The video will be available for free download from the NATO Multimedia Portal after the event. The transcript of the Secretary General’s remarks will be available on the NATO website.   Contact the NATO Press Office.

COUNCIL OF THE EUROPEAN UNION latest news

 

Press material Friday 17 March 2023

● Council of the EU   17/03/2023 12:16 | Press release | Joint press statement following the 16th meeting of the EU – North Macedonia Stabilisation and Association Council   The EU - North Macedonia Stabilisation and Association Council (SA Council) held its sixteenth meeting on 17 March in Skopje. The meeting was chaired by Mr Dimitar Kovachevski, Prime Minister of North Macedonia. The Delegation of North Macedonia also included Mr Bojan Maricikj, Deputy Prime Minister and Mr Bujar Osmani, Minister of Foreign Affairs. The EU delegation was led by Mr Josep Borrell Fontelles, the EU High Representative for Foreign Affairs and Security Policy. Mr Olivér Várhelyi, Commissioner for Neighbourhood and Enlargement, represented the European Commission. This was the first time that the SA Council meeting took place in North Macedonia, underlining the European Union’s full and unequivocal commitment to the EU membership perspective of the Western Balkans and to the accession negotiation process of North Macedonia. The meeting provided an opportunity to take stock of the progress that North Macedonia made in the preparations for EU membership and within the framework of the Stabilisation and Association Agreement, and to discuss the further work needed. Participants welcomed the advanced process of analytical examination of the EU acquis (screening), while looking forward to the completion of the screening process. Participants welcomed the clear EU strategic objective and ambition of North Macedonia to move forward in the accession negotiation process based on continuing the reform progress, while reaffirming EU commitment to further support North Macedonia in its endeavours towards EU membership. Participants also underlined the importance of continued reform and further consolidating the implementation of reforms, in the interest of the citizens of North Macedonia. Given the new geopolitical reality following Russia’s war of aggression against Ukraine, the EU strongly underlined the importance of further deepening the cooperation on foreign policy issues. The EU welcomed and strongly commended North Macedonia for its full and consistent alignment with the EU Common Foreign and Security Policy, including on EU restrictive measures. This is a strong expression of North Macedonia’s strategic choice and place in a community of values. The EU also welcomed the holding of the 2023 Chairpersonship of the OSCE by North Macedonia in the challenging global context. Participants noted the importance for further overall progress in the areas covered by chapters 23 (Judiciary and Fundamental Rights) and 24 (Justice, Freedom and Security). Building on progress already made, sustained efforts are needed to ensure the independence, professionalism, transparency and impartiality of the judicial system. The EU encouraged North Macedonia to further step-up investigations, prosecutions and final convictions in corruption cases, including at high level. The SA Council welcomed the conclusion of the Status Agreement between the EU and North Macedonia on operational activities carried out by the European Border and Coast Guard Agency (Frontex) in North Macedonia and looks forward to its entry into force. The EU encouraged all parties in Parliament to continue to work together constructively and to build cross-party consensus focusing on making concrete steps in the negotiating process and maintaining the current reform momentum. Regarding economic developments, the SA Council recalled the ‘Joint Conclusions of the Economic and Financial Dialogue between the EU and the Western Balkans and Turkey’ on the Economic Reform Programmes of 24 May 2022, and encouraged the government to focus on their implementation and follow-up. It called on the country to address remaining key challenges and to mitigate negative consequences of the Russia’s war of aggression against Ukraine. Good neighbourly relations and regional cooperation remain essential elements of the enlargement process, as well as of the Stabilisation and Association Process. Existing bilateral agreements, including the Prespa agreement between North Macedonia and Greece and the Treaty on Friendship, Good-neighbourliness and Cooperation between North Macedonia and Bulgaria, need to be implemented in good faith. The EU will continue to strengthen and intensify its engagement at all levels to support North Macedonia’s political, economic and social transformation, including through continued assistance based on tangible progress on the rule of law and socio-economic reforms, as well as on adherence to EU values, rules and standards. Following the adoption of the legal framework for the Instrument for Pre-accession Assistance (IPA) III, which is the main funding source, the EU underlined the need to strengthen the administrative capacity of IPA structures to ensure smooth implementation of IPA III programmes. The EU is looking forward to the full implementation of the Economic and Investment Plan and the Green and Digital Agenda for the Western Balkans, both important tools for bridging the socio-economic gap, improving infrastructure and connectivity, and supporting the region’s green and digital transition while building resilience and energy independence. In the last three years North Macedonia received EUR 276.3 million grants and EUR 362.5 million loans within the framework of the Economic and Investment Plan. Participants also recalled the importance of the EU’s EUR 1 billion Energy Support Package for the Western Balkans (EUR 500 million in grants and EUR 500 million in soft loans & guarantees), of which EUR 80 million for North Macedonia aims to protect the most vulnerable groups affected by the energy crises, in particular businesses, households and SMEs while advancing energy transition and diversification. The first tranche of EUR 72 million was already disbursed. The Stabilisation and Association Council also held an exchange of views on developments in North Macedonia and the regional situation in the Western Balkans.

Meetings Friday 17 March 2023

● Council of the EU   17/03/2023 12:20 | MEETING | Main results - EU - North Macedonia Stabilisation and Association Council, 17 March 2023   North Macedonia and the EU met for the 16th Stabilisation and Association Council to review the accession strategy, take stock of the bilateral relations and exchange views on developments in the Western Balkans.

Council of the EU
EU - North Macedonia Stabilisation and Association Council, 17 March 2023

Main results

North Macedonia and the EU met on 17 March 2023 for the 16th Stabilisation and Association Council. The meeting took place for the first time in the region in Skopje, North Macedonia.

The 16th Stabilisation and Association Council reviewed relations between the EU and North Macedonia under the Stabilisation and Association Process.

The participants focused on the accession strategy, including political criteria, economic criteria and the EU acquis, and took stock of the bilateral relations under the Stabilisation and Association Agreement.

There was also an exchange of views on recent developments in the Western Balkans.Joint press statement following the meeting of the Stabilisation and Association Council
EU enlargement - North Macedonia (background information)


Meeting information

17 March 2023

Press material Saturday 18 March 2023

● Council of the EU   18/03/2023 07:56 | Press release | North Korea/DPRK: Statement by the High Representative on behalf of the EU on the launch of an intercontinental ballistic missile on 15 March   The European Union (EU) strongly condemns the Democratic People’s Republic of Korea’s (DPRK) launch of an intercontinental ballistic missile on 15 March, which followed its launch of short-range missiles. These illegal and dangerous actions all constitute blatant violations of UN Security Council resolutions that threaten international peace and security. The EU reiterates that the DPRK must comply immediately with its obligations under UN Security Council resolutions by abandoning all its nuclear weapons, other weapons of mass destruction, ballistic missile programmes and existing nuclear programmes, in a complete, verifiable and irreversible manner and cease all related activities. This is the only viable route to sustainable peace and security on the Korean peninsula. The DPRK cannot and will never have the status of a nuclear weapon state under the Nuclear Non-Proliferation Treaty (NPT) or any other special status in that regard. The EU urges the DPRK to return immediately to full compliance with the NPT and International Atomic Energy Agency (IAEA) safeguards and to sign and ratify the Comprehensive Nuclear Test Ban Treaty. The DPRK’s use of resources to support its unlawful weapons programme exacerbates the humanitarian situation of its population. The EU calls upon the international community to respond in a united and firm manner to uphold the international non-proliferation architecture and to prevent the DPRK from further escalating military tensions in the region. It is critical that all UN Member States, especially Members of the UN Security Council, ensure the full implementation of UN sanctions and urge the DPRK to resume meaningful dialogue with the main parties. The EU expresses its full solidarity with Japan and the Republic of Korea. The EU is ready to work with all relevant partners in promoting a meaningful diplomatic process aimed at building sustainable peace and security through the complete, verifiable and irreversible denuclearisation of the Korean peninsula.