2007. harald hirschhofer. financial sector in cee. how to reduce macro-prudential vulnerabilities?...
TRANSCRIPT
Harald Hirschhofer
Ständiger Vertreter für Serbien und Montenegro/Resistant Representative for Serbia and Montenegro, International
Monetary Fund (IMF), Österreich/AustriaFinanzbereich in den CEE-Ländern. Wie können Makro-Risiken reduziert werden?
Financial Sector in CEE. How to Reduce Macro-Prudential Vulnerabilities?
Central and Eastern Europe Economic ForumVelden Austria, 19 September 2007
IMF Resident RepresentativeHarald Hirschhofer
FINANCIAL SECTOR IN CEE
How to Reduce Macro-Prudential Vulnerabilities?
3
Stages of Convergence – Expansion and Reorientation
Anticipated Positive Productivity Shock with External Finance
Source: IMF staff simulation.
Consumption
0.96
0.97
0.98
0.99
1
1.01
1.02
1.03
1.04
1.05
1.06
1.07
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Relative price of nontradables
0.98
0.99
1
1.01
1.02
1.03
1.04
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
GDP
0.96
0.97
0.98
0.99
1
1.01
1.02
1.03
1.04
1.05
1.06
1.07
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Current Account
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
4
Will Convergence Expectations Be Met?
Ireland or Portugal?
Source: IMF staff estimates.
Per Capita GDP: Deviation from EU-6(In $US)
-20000
-15000
-10000
-5000
0
5000
10000
15000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-20000
-15000
-10000
-5000
0
5000
10000
15000
Source: IMF staff estimates.Note: EU-6: Austria, Belgium, France, Germany, Italy, Netherlands.
Per Capita GDP: Deviation from EU-6(In $US)
-20000
-15000
-10000
-5000
0
5000
10000
15000
20000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-20000
-15000
-10000
-5000
0
5000
10000
15000
20000
5
CEE Macroeconomic Vulnerabilities Booming domestic demand and consumption fuelled by:
• Income, profit, and asset price expectations• Rapid wage growth and inadequate public sector policies• Rapid credit growth
.. led to very high current account deficits and external debt
-30
-20
-10
0
10
20
30
40
50
60
70
80
90
100
-30
-20
-10
0
10
20
30
40
50
60
70
80
90
100
Current account balance External debtin percent of GDP
6
Financial Sector Expansion Brings Macro-Risks
Strong FDI and credit growth have contributed to economic growth But the credit has been absorbed mostly by the non-tradable sector
Source: National authorities.
Note: Emerging Europe: Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Serbia, Slovak Republic, Slovenia, Ukraine.
Composition of Credit to NFCs in Emerging Europe(In percent of GDP)
0
5
10
15
20
25
30
2000 2001 2002 2003 2004 2005 2006
0
5
10
15
20
25
30
Real Estate and Construction
Other Nontradables
Tradables
7
Financial Sector Vulnerabilities
High acquisition/implementation costs and ambitious profit targets lead to aggressive competition and risk taking – the 200 percent market share problem.
Weak institutional infrastructure: accounting, bankruptcy and legal procedures, corporate governance…
Risk assessment cannot draw on historic experience
Are credit risks properly priced?
8
To Reduce Current Account Deficits, Resources Need To Reach The Tradable
Sector
Macro measures to enhance supply and restrict demand
Financial sector measures to insure financial sector stability and efficient markets
9
Macro-Measures To Tighten Demand Tight monetary policy to keep inflation under control Prudent fiscal policy
Complicated by surpluses, windfall tax revenues, privatization proceeds, unemployment
Change expenditure composition: less consumption, better infrastructure investment
Source: WEO.
Fiscal and Current Account Imbalances(In percent of GDP)
-25
-20
-15
-10
-5
0
5
10
15
Hu
ng
ary
Po
lan
d
Cze
ch
Rep
ub
lic
Slo
va
k R
epu
blic
Alb
an
ia
Cro
atia
Tu
rkey
Ro
ma
nia
Se
rbia
Ukra
ine
Lith
ua
nia
Ma
ce
do
nia
La
tvia
Bo
sn
ia &
He
rzeg
ovin
a
Esto
nia
Bu
lga
ria
General Government Balance
CA Balance
10
Accelerate Structural Reform
Liberalize and ensure competition
Privatize to strengthen incentives and investment: growth, fiscal performance, and jobs
Bankruptcy returns assets into production processFiscal impact of Privatization1 in Serbia, 2003-2007 H1
(In million RSD)
2003 2004 2005 2006 2007 H1 Total fiscal contribution (1+2+3)
-15.5
-8.3
414.7
947.6
502.4
(1) Corporate Income Tax 3.9 1.7 3.4 88.9 123.9 (2) Subsidies 19.5 10 11.5 0.0 0.0 (3) Budget financing costs reduction 0.0 0.0 422.8 858.7 378.5
1 Sample of 30 companies privatized in 2005
11
Banking Sector Measures
Correctly price risks and use prudential measures
Improve consumer protection
Reconsider mortgage subsidy programs
Strengthen risk-based supervision and international cooperation among supervisors
12
Deepen Financial Markets
Strengthen regulatory framework for trading, brokers, insurance, institutional investors, investment funds, disclosure and listing standards
Strengthen institutions, such as credit bureaus, bankruptcy courts, data filing systems, and corporate registries
But allow institutional investors to invest abroad for risk diversification