Martin Brownbridge

Financial Regulation in Developing Countries

Many LDCs have implemented reforms to strengthen the prudential regulation and supervision of their financial systems. This article examines the progress made by LDCs in implementing reforms, analyses the weaknesses in their prudential systems and discusses policy options for further reform. While considerable improvements have been achieved, the occurrence of banking crises during the 1990s indicates that many countries have yet to build robust prudential systems which can protect their banking systems from systemic crises. The weaknesses include loopholes in the prudential regulations, shortages of skilled supervisors, and regulatory forbearance. Furthermore, there are difficulties in applying the developed country model of regulation, which relies heavily on accurate financial information, highly skilled technicians and an impartial bureaucracy, in an environment characterised by weak accounting and legal frameworks, acute shortages of skilled personnel and pervasive political interference in public administration. Options for further reform include higher capital adequacy standards, explicit rules covering intervention policy in distressed banks, restraints on competition in banking markets and greater use of the market for monitoring banks.

Resolving Bank Failures in Uganda: Policy Lessons From Recent Bank Failures

In 1998/99 four insolvent commercial banks were intervened and closed by the central bank in Uganda. One bank was closed promptly while the other three were all subject to some form of attempted open bank resolution before eventual closure. This article examines the lessons from this experience and concludes that, in general, prompt closure is preferable to open resolution. This is because the losses incurred by distressed banks are likely to be much greater than the estimates made by regulators or auditors prior to closure, while the prospects for recapitalisation by private sector shareholders are likely to be very limited at best. Open resolution entails serious dangers of moral hazard, which increase the eventual cost to depositors and taxpayers.

The Challenges to Long Run Fiscal Sustainability in Romania

Romania, along with many other countries in the European Union, faces daunting fiscal challenges. Fiscal balances deteriorated sharply following the global economic crisis, forcing Romania to implement a fiscal consolidation that was one of the largest in the European Union, but which may not be sustainable without a recovery of economic growth. Although the ratio of public debt to gross domestic product is still relatively modest, at around 35 percent, long-term fiscal solvency is threatened by the costs of funding the public pension system in the face of adverse demographic shifts over the next 50 years. Because of widespread tax evasion, the tax system in Romania is one of the least efficient in the European Union. Tax reforms that can reduce the amount of tax lost to evasion and fraud could make a major contribution to enhancing fiscal sustainability.

How Should Fiscal Policy Respond to the Economic Crisis in the Low Income Commonwealth of Independent States ? Some Pointers from Tajikistan

The paper analyses how the global economic crisis will affect the economies of the low income Commonwealth of Independent States (CIS) and discusses the fiscal measures which can be taken to help mitigate the adverse impact of the crisis. It focuses on Tajikistan, the poorest member of the CIS but also highlights similarities with the economies of Armenia, the Kyrgyz Republic and Moldova. The main channels through which the global economic crisis will affect the low income CIS economies is through a sharp reduction in remittances from migrant workers in Russia and lower export earnings. The adjustment to this external shock will involve a reduction in imports, private consumption, domestic output and government revenue. Fiscal policy, constrained by very limited macroeconomic and fiscal space, faces acute challenges. Maintaining budget targets for fiscal deficits and domestic borrowing in the face of revenue shortfalls will lead to a tightening of the fiscal stance, exacerbating recessionary pressures and making it very difficult to protect priority social expenditures from cuts. To avoid these outcomes, external support from donors, preferably in the form of quick disbursing budget support, is required. If additional external budget support can be mobilized, the priorities for fiscal policy should be to protect spending on budgeted social sector programs and, if sufficient budget resources are available, to implement a program of labor intensive repair and maintenance of public infrastructure to provide employment for returning migrant workers. Tax cuts are unlikely to be an effective use of scarce budget resources, either to stimulate the economy or protect the incomes of the poor. Up scaling existing social assistance programs may be a feasible way to protect the poor in some low income CIS countries provided they are not as poorly targeted as in Tajikistan.

Can Prompt Corrective Action Rules Work in the Developing World

Abstract A major weakness of bank regulation is “regulatory forbearance,” which is partly attributable to the scope for discretionary intervention by bank regulators. Therefore, bank regulation might be improved by subjecting intervention policy to a set of rules, such as the “Prompt Corrective Action” (PCA) rules in the US. The introduction of PCA rules is under consideration in a number of developing countries (DCs), stimulated by costly bank failures. This paper examines the potential benefits and feasibility of incorporating PCA rules into banking regulation in DCs. The paper concludes that PCA rules can improve bank regulation in DCs if introduced as part of a comprehensive set of prudential reforms which strengthens the operational independence of the bank regulators, improves their on-site examination capacities, strengthens accounting standards and raises public and political understanding of the need for strong and impartial bank regulation.

Financial Regulation in Developing Countries: Policy and Recent Experience

In this valuable new book, a distinguished group of authors takes stock of the existing state of knowledge in the field of finance and the development process. Each chapter offers a comprehensive survey and synthesis of current issues. These include such critical subjects as savings, financial markets and the macroeconomy, stock market development, financial regulation, foreign investment and aid, financing livelihoods, microfinance, rural financial markets, small and medium enterprises, corporate finance and banking.

Policy Symposium: Financial Regulation and Supervision in Developing Countries: An Overview of the Issues

No Abstract Available