Policy efforts in Latvia have supported stabilization. Immediate risks are much lower, but medium-term challenges remain. The government should focus on durable spending cuts, but revenue measures may also be required. Efforts to strengthen regulation and supervision to improve financial stability, including reducing reliance on wholesale external funding, is commended. With monetary and fiscal policy constrained by the fixed exchange rate and the need to reduce the deficit, growth depends on structural reform. While economic and financial conditions are much improved, risks remain significant.

The IMF has approved an exceptional access Stand-By Arrangement for Latvia. The program is part of a coordinated international effort that has improved financial and economic stability. By early 2008, the fast growth has leveled off but severe vulnerabilities turned the slowdown into a crisis. Immediate steps to stabilize the financial sector and help stem reserve losses has focused on resolving the systemic Parex Bank, which is experiencing a deposit run. Measures to ensure long-term external viability has focused on fiscal and income policies.

When are policy makers willing to make costly adjustments to their macroeconomic policies to mitigate balance-of-payments problems? Which types of adjustment strategies do they choose? Under what circumstances do they delay reform, and when are such delays likely to result in financial crises? To answer these questions, this book examines how macroeconomic policy adjustments affect individual voters in financially open economies and argues that the anticipation of these distributional effects influences policy makers' decisions about the timing and the type of reform. Empirically, the book combines analyses of cross-national survey data of voters' and firms' policy evaluations with comparative case studies of national policy responses to the Asian financial crisis of 1997/8 and the recent global financial crisis in Eastern Europe. The book shows that variation in policy makers' willingness to implement reform can be traced back to differences in the vulnerability profiles of their countries' electorates.

The concept of fiscal impulse is defined, discussed, and differentiated from measures that attempt to summarize the macroeconomic effects of fiscal policy. Two methodologies are briefly discussed and their corresponding measures presented for the G-7 countries over the ten-year period ending in 1989. Controversies about the measure are highlighted and potential improvements are also discussed.

This book highlights the future threat to Asia from a broader perspective that takes account of the Japanese and Asian financial crises during the 1990s as well as the global crisis of 2008. It reveals that Asian crises take many diverse forms, and that the solutions devised to date have only been locally and not universally effective. Policymakers are accordingly advised to always plan for the element of surprise.

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Lithuania experienced a severe output decline. A large consolidation contained the deterioration in the fiscal deficit and safeguarded market financing. Further fiscal consolidation is needed to place deficits and debt on a sustainable path. Tackling the deficit in the social security system and expanding the revenue base will achieve adjustment in a sustainable, pro-growth, and equitable manner. A sustained recovery also hinges on the ability of the economy to rebalance toward tradables. The rising level of unemployment makes it imperative to advance with structural reforms.

The large capital inflows that generated a domestic demand boom in Bulgaria led to strong employment growth. But a sharp reduction in capital inflows led to a contraction of domestic demand, while the recession in Bulgaria’s trading partners caused a drop in exports. Public policies will also need to attune to the domestic demand-driven revenue boom and adjust spending growth to the new environment. Capital inflows are likely to remain low, and domestic demand is expected to decline further, requiring substantial adjustments by both the private and public sectors.

In this study, the economic stability of Croatia is overviewed after the global crisis. The reforms outlined in the government’s economic recovery program (ERP) are in progress. Judicial reforms are instituted to strengthen bankruptcy procedures for companies. To improve the medium-term growth prospects of the economy, there is a need to tackle the structural rigidities. Executive Directors agreed that monetary policy should aim at gradually building up reserves in order to increase Croatia’s resilience to external vulnerabilities, while exercising caution toward shifts

This 2010 Article IV Consultation highlights that Montenegro has been hard hit by the global financial crisis. Contagion and concerns about the robustness of the banking system have triggered large deposit withdrawals and a credit crunch. Moreover, the unwinding of the real estate boom has generated strong negative wealth effects that depressed demand. The authorities have taken wide-ranging measures to stabilize the financial system and rekindle lending activity. Foreign parents have also stepped in with substantial liquidity infusion.