Since 2009, the World Bank has been conducting financial crisis simulation exercises and learning valuable lessons on where institutional vulnerabilities lie. These exercises are intended to test, or simply to practice, the use of existing or proposed legal instruments, interagency and/or cross-border agreements, and other crisis management arrangements. More than 20 exercises in all world regions have been executed so far, focusing either on the interaction among top national authorities (typically between the Ministry of Finance, the Central Bank, the Bank and non-bank Supervisors, and the Deposit Insurance Agency), or on the interaction among bank supervisors of different national jurisdictions dealing with cross-border issues.
Financial Inclusion advocate Queen Maxima pushed the FATF to consider financial inclusion (Credit: Haags Uitburo)
Monarchs seem mostly untroubled by financial concerns, but Queen Maxima of the Netherlands has made the workings and regulations of those excluded from the formal banking sector a personal issue. Queen Maxima recently attended a plenary meeting of the Financial Action Task Force (FATF) - the first reigning Queen to be present at such a gathering, in order to raise concerns and bring change on a subject that has become a passion for her – and the World Bank Group: financial inclusion. Queen Maxima is the UN Secretary-General’s Special Advocate for Inclusive Finance for Development. In this role, she had already called on the FATF to pay more attention to financial inclusion, and how it relates to financial integrity. In June 2010, at the initiative of the then Dutch Presidency of the FATF, the then Princess Maxima pressed a reluctant FATF plenary in Amsterdam to recognize how ill-designed financial integrity requirements affect financial inclusion by keeping people outside the formal banking sector, and how this can raise the risk of money laundering and terrorist financing.
The discussions on budget transparency and open data have been gaining momentum over recent years. Not only is it important that governments publish budget data on web sites, but also that they disclose meaningful data and full picture of financial activities to the public. The question is, how much of the disclosed information and documents are reliable? What is the scope of disclosed information? Is there any reliable information about other important aspects of fiscal discipline and transparency?
A number of fiscal transparency instruments and guidelines have been developed by civil society groups and international organizations to evaluate the existence, regularity, and contents of certain key budget documents published in the public domain and whether the information comply with international standards. However, current instruments do not concentrate on the source and reliability of published information, as well as the integrity of underlying systems and databases from which governments extract data.
The failure of SIFIs could set off a global financial disaster (Credit: istock photo, BrianAJackson)
The Global Financial System can’t stand another systemic shock. Even as efforts are rallying to accelerate the recuperation of global financial systems, regulators should remain vigilant for possible deterioration. Restoring financial stability through recovery plans and extended interventions using public funds mandates closer monitoring of the financial markets as well as additional measures to minimize the likelihood and severity of potential outcomes if systemically important financial institutions (SIFIs) were to fail.
How we support agribusiness and handicrafts sector in Upper Egypt
Last week I met 35 entrepreneurs from Assyut, Aswan, Beni Seouf, Cairo, Fayoum, Giza, Luxor , Minya, Qena, Sharkeyya, Sohag. Some of these names aren’t familiar and there is a reason for that…
They had just been awarded 25,000 dollars each through the Egypt Development Marketplace (DM) competition because their businesses have potential to grow, and create jobs for some of the most vulnerable and marginalized people in Upper Egypt.
I was struck by the new innovative ideas for example using palm trees to produce handicrafts and high quality affordable furniture. But also by the revival of local industries such as the ancient Upper Egyptian carpet weaving produced by ferka, not only generating income for marginalized girls and women, but also renewing pride in Egypt’s remarkable culture and heritage. Whether producing local honey, or adding value to products through food processing of tomato paste, olive oil or dairy products specifically for low-income families, these businesses had deserved their cash reward.
- Upper Egypt
- Urban Development
- Private Sector Development
- Labor and Social Protection
- Information and Communication Technologies
- Financial Sector
- Agriculture and Rural Development
- Middle East and North Africa
- Egypt, Arab Republic of
Will any government be brave enough to let a big bank fail? (Credit: Ian Kennedy, Flickr Creative Commons)
Five frightening years after the meltdown of the global financial system – with the world’s advanced economies stuck in a painful slump – policymakers are still struggling to reinvigorate job growth. If the unemployed were awaiting some tangible initiative from this summer’s G8 summit, they were surely disappointed: Last week’s G8 summit communiqué offered only boilerplate assertions that “decisive action is needed to nurture a sustainable recovery and restore the resilience of the global economy.”
The financial fiasco of 2008 left human wreckage in its wake. An additional 120 million people worldwide were plunged into poverty at the nadir of the crisis, wiping out years of development progress. According to the World Bank's most recent World Development Report, there are now about 200 million unemployed worldwide; 1.5 billion only marginally employed in tenuous jobs; and 2 billion dropouts from the workforce.
The financial crises has entered a new, difficult phase (Credit:©iStockphoto.com/Photomorphic)
The Thirteenth Annual Financial Sector World Bank/Federal Reserve/International Monetary Fund Seminar on Policy Challenges for the Financial Sector was held on June 5 to 7th, attracting more than 90 participants from over 60 countries. There were many distinguished speakers, including World Bank President Jim Yong Kim, IMF Managing Director Christine Lagarde and Federal Reserve Chairman Ben Bernanke. One of the highlights was a provocative lunchtime address on The Contradictions of System Stability: One Asian View by Andrew Sheng, the President of the Fung Global Institute.
Sovereign difficulties have divided financial markets in the Euro area, thereby increasing differences in bank lending rates across countries. Policy makers in both Brussels and Frankfurt are concerned about an uneven transmission of policy interest rate cuts by the European Central Bank (ECB) to bank lending rates across the region.
Based on this situation, a key question stands out: is the link between official, market, and retail interest rates broken?
When markets are functioning properly, interest rates on loans follow the policy rate in a uniform way across countries (granted with some lag). But, in the context of the ongoing crisis, markets became somewhat irresponsive – resulting in ECB rate cuts being unevenly passed on to borrowers across Euro-area countries. This uneven distribution has meant that those countries facing greater financial difficulties had to endure tougher financing conditions than those facing fewer difficulties – as exemplified when comparing Spanish and Italian retail rates to the much-lower French and German ones.
So far, the economic literature has been relatively robust in arguing that government bond yields or credit default swaps (CDSs), given their stability, do not exert much influence on the way banks set their interest rates for their clients. However, the crisis has shown that because of the interconnectedness of central bank and sovereign balance sheets, developments in sovereign markets affect retail interest rates.
How has this played out in the EU11 countries? Have retail interest rate decreased in those countries where central banks reduced their policy rates? Or, was this a reaction on downward movement of CDSs?
Figure 1. Interest rates on new lending to enterprises (in Percent) and CDS spreads (in basis points) in selected EU11 countries
Just six months ago, in the previous South East Europe Regular Economic Report (SEE RER) covering the six Western Balkan countries of Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, and Serbia (SEE6), we looked at the double-dip recession in this region, and structural policies needed for recovery.
Now, we are happy to report that recovery is, indeed, under way in each of these countries. In 2013, the SEE6 region is projected to grow 1.7 percent, thus ending the double-dip recession of 2012. Electricity, agriculture, and even some exports are helping with this rebound of output. Kosovo is leading the pack with a growth rate of 3.1 percent, with Serbia (which accounts for nearly half of the region’s GDP) expected to grow by 2 percent on the heels of increased FDI, exports, and a return to normal agricultural crops. (In 2012, by contrast, agricultural output in Serbia dropped 20 percent on account of a severe drought). Albania, FYR Macedonia, and Montenegro are all expected to grow by between 1.2-1.6 percent. Rounding out this group is Bosnia and Herzegovina – with expected growth of 0.5 percent.
So, are things finally looking up in the Balkans? Not exactly.
Figure 1: SEE6 Unemployment Rates, 2012
Source: LFS data and ILO. Kosovo’s tentative data suggest unemployment as high as 35 percent.
Does everyone need financial education? (Credit: Bill Ruhsam, Flickr)
I am not at all sure I could live on a few dollars a day. Why would I think that those who do need financial education? Yet in any meeting or conference on financial inclusion, someone will clamor for financially educating the poor and all will readily nod. Please allow me to side-step the substance of the issue, for I have no new empirical evidence to bring to the table either way. What I find curious is why the idea that poor people are lacking essential financial literacy skills is so prevalent among the non-poor. Let me propose five reasons.
1. The poor mis-spend
Who hasn’t wondered why it is you can find Coke bottles in the poorest communities in developing countries? Who hasn’t had a pang of doubt upon seeing reams of shiny bags of candy hanging from the shabbiest stalls in the remotest villages? And you’re thinking: my parents didn’t buy me this stuff! Well, it might be because your parents had plenty of other ways to reward you and each other. Think toys, ski trips, family outing to a restaurant, gifts, etc. Next to these things, splurging one day on some candy and a Coke seems downright meaningless. But for many it might be the easiest way to create magical family moments, to transcend a dreary daily routine. If it helps keep the family going and united, it might be a bargain. We musn’t pass judgment on how the poor spend their money, for we cannot imagine the job that they are ‘hiring’ those seemingly superfluous products to fulfill.