Suchergebnisse

Movements in global capital during the late 1990s and the
greater emphasis on price stability led many countries to abandon fixed
exchange rate regimes and to design institutions and monetary policies
to achieve credibility in the goal of lowering inflation. Such recent
developments have brought to the forefront the idea that freely mobile
capital, independent monetary policy, and fixed exchange rates form an
"impossible trinity". Inflation-targeting regimes being adopted by many
countries provide a way of resolving this dilemma, and it is suggested
that such a regime be implemented in Pakistan as well. JEL
classification: E42, E52 Keywords: Monetary Policy, Rules versus
Discretion, Inflation Targeting

Pakistan's economy has grown faster on average than many other
low- and middleincome countries over the past two decades. But several
countries in Southeast Asia have fared even better. This paper focuses
on factors that explain Pakistan's relative growth performance. In
addition to more traditional factors believed to determine growth, this
paper looks particularly at the role of differences in the quality of
human capital. The cross-country empirical results suggest that
accumulation of physical capital and improvements in the quality of
institutions have the largest pay-offs in terms of achieving higher
growth, but that better education and health care also have a
significant impact. Investment in these areas will increase the
possibility of Pakistan entering a virtuous cycle of high growth and
improved living conditions for the population.

Deregulation, technology, and financial innovation are
transforming banking. Indeed, banking is no longer the business it was
even a few decades ago. The way banking services are provided has
changed dramatically, and in many countries they are even offered by
institutions that are quite different from traditional banks. As the old
institutional demarcations become increasingly irrelevant, increased
competition from other intermediaries has led to a decline in
traditional banking in which banks took deposits and made loans that
stayed on their books to maturity. Banks thus have been moving rapidly
into new areas of business. In this evolving financial environment, the
international banking community and the Basel Committee on Banking
Supervision of the Bank for International Settlements (BIS) are
currently wrestling with pinning down an appropriate regulatory
framework. The regulatory response to these changes has been a move away
from the increasingly ineffective command-and-control regulations to
greater reliance on assessing the internal risk-management systems, the
supervision of banks, and more effective market discipline. In the
language of the New Basel Accord, this represents a shift in emphasis
away from capital-adequacy rules toward supervision and market
discipline. This paper provides an overview of the profound and rapid
changes brought about by technology and deregulation, and discusses the
hurdles that will have to be negotiated for putting in place a suitable
regulatory framework. On the one hand, inadequate resolution of these
challenges will create the wrong incentives and lead to banking
fragility. On the other hand, overregulation carries the danger that it
will retard the development of national financial systems, hinder the
best use of available domestic savings, prevent countries from accessing
international capital, and ultimately lead to slower growth. Developed
financial systems are being challenged by the shift in regulatory focus,
and the definition and implementation of appropriate regulatory
standards is encountering substantial difficulties. Finding the right
balance between regulation, supervision, and reliance on market
discipline is likely to be even more difficult in developing and
transition countries.

The surge of private capital flows to developing countries
that occurred in the 1990s has been the most significant phenomenon of
the decade for these countries. By the middle of the decade many
developing countries in Asia and Latin America were awash with private
foreign capital. In contrast to earlier periods when the scarcity of
foreign capital dominated economic policy-making in these countries, the
issue now for governments was how to manage the largescale capital
inflows to generate higher rates ofinvestrnent and growth. While a
number of developing countries were able to benefit substantially from
the private foreign financing that globalisation made available to them,
it also became apparent that capital inflows were not a complete
blessing and could even turn out to be a curse. Indeed, in some
countries capital inflows led to rapid monetary expansion, inflationary
pressures, real exchange rate appreciation, fmancial sector
difficulties, widening current account deficits, and a rapid build-up of
foreign debt. In addition, as the experience of Mexico in 1994 and the
Asian crisis of 1997-98 demonstrated, financial integration and
globalisation can cut both ways. Private capital flows are volatile and
eventually there can be a large reversal of capital because of changes
in expected asset returns, investor herding behaviour, and contagion
effects. Such reversals can lead to recessions and serious problems for
financial systems. This paper examines the characteristics, causes and
consequences of capital flows to developing countries in the 1990s. It
also highlights the appropriate policy responses for governments facing
such inflows, specifically to prevent overheating of the economy, and to
limit the vulnerability to reversals of capital flows.

There has been a sea change in the views of the economics
profession as well as economic policy-makers over the past decade or so
regarding the role of the government in the development process. Indeed,
it is now becoming conventional wisdom that government can no longer be
a dominant player in economic activities, but rather should restrict
itself to providing an "enabling" environment within which the private
sector can take the lead and flourish. More specifically, government
intervention in the economy has to be designed carefully so as to
support the private sector and not inhibit its development. The general
acceptance of this paradigm is evident in the steadily declining
importance of government activities in the economies of most of the
developing world. But does this new paradigm mean that government
investment has no role whatsoever in affecting growth in developing
countries? Reality is that public investment still represents a large
share of total investment in the majority of developing countries, and
the question is what role it plays in relation to private investment in
stimulating economic growth. The objective of this paper is to ascertain
empirically for a large group of developing countries the relative
importance of public and private investment in promoting and sustaining
growth.

The need for stabilization typically arises when a country
experiences an imbalance between domestic aggregate demand and aggregate
supply, which is reflected in a worsening of its external payments
position and an increase in the rate of inflation. To combat these twin
problems, policies are required that restrain domestic demand and, at
the same time, expand the production of tradeable goods, thereby easing
the balance of payments constraint. Policies to influence the aggregate
level or rate of growth of domestic demand and absorption, generally
labelled as "demand side policies", include the whole range of monetary
and fiscal measures, while the shifting of resources towards the
production of tradeables involves altering the country's real exchange
rate through devaluation. In general, monetary and fiscal policies and
exchange rate action are considered an integral, if not an indispensable
component of any stabilization programme.

In the past decade a combination of events caused the
international economic climate to become increasingly inimical to the
growth and current account prospects of most developing countries.
Worsening terms of trade, falling growth rates in industrial countries,
and sharp changes in the availability of foreign financing that were
accompanied by a dramatic increase in real interest rates on external
borrowing, made the problem of economic management very difficult for
policy-makers in the developing world. Adjusting to these shocks would
have typically called for fiscal and monetary restraint to control both
public and private spending, and more flexible exchange rate policy.
Such a strategy, for one reason or another, was not followed by a number
of developing countries, and consequently these countries experienced
falling growth rates, rising inflation, and current account deficits
that over time became unsustainable.