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Food, Financial Crises, and Complex Derivatives : A Tale of High Stakes Innovation and DiversificationThe 2008 food price crisis was an
 integral part of the financial crisis. In fact, the food
 price crisis was the second crisis in a chain of events that
 began in 2007 with the mortgage crisis, and culminated in
 the worst financial crisis since the Great Depression.
 Contrary to what was generally believed in 2008, developing
 countries, particularly food-importing countries, were part
 of the early wave of the financial crisis via food price
 increases, and later suffered another wave via the real
 sector. The events leading up to the food crisis were global
 and complex in nature. As a result, as the G-20 discusses
 solutions to the financial crisis, any new framework must
 include developing countries, especially low-income
 countries. In addition, developing countries, especially in
 Africa, must pay close attention to the work of the
 Financial Stability Board (FSB) and its recommendations on
 financial market reform, and over-the-counter (OTC)
 derivatives in particular, because these reforms will have
 important consequences for their housing, food, fuel,
 financial markets, and ultimately their growth and poverty
 reduction objectives.
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Mitigating Vulnerability to High and Volatile Oil Prices : Power Sector Experience in Latin America and the CaribbeanCountries heavily dependent on imported oil to power a significant portion of their electricity generation are especially vulnerable to high and volatile oil prices. In net oil-importing countries worldwide, high and volatile oil prices ripple through the power sector to numerous segments of the economy. As prices move up and down, so does the cost of electricity production, which has far-reaching effects on the economy, fiscal and trade balances, businesses, and household living standards. High and volatile oil prices affect economies at both a macro and micro level. The major direct effects at the macro level are a deteriorating trade balance, through a higher import bill, reflecting a worsening in terms of trade; and a weakening fiscal balance due to greater government transfers and subsidies to insulate movements in international energy markets. At the micro level, investment uncertainty results from the higher risk of engaging in new projects and associated development and sunk costs, which, in turn, affects policy decisions and economic growth. This study responds to the needs of policy makers and energy planners in oil-importing countries to better manage exposure to oil price risk. The study's objective is threefold. First, it analyzes the economic effects of higher and volatile prices on oil-importing countries, with emphasis on the power sector, using examples from Latin America and the Caribbean (LAC). Second, it proposes a menu of complementary options that can be applied over multiple time frames. Several structural measures are designed to reduce oil generation and consumption, while a range of financial instruments are suggested for managing price risk in the short term. Finally, it attempts to quantify some of the macroeconomic and microeconomic benefits that could accrue from implementing such options.
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Dealing with the Challenges of Macro Financial Linkages in Emerging MarketsThe 2008 financial crisis has highlighted the challenges associated with global financial integration and emphasized the importance of macro financial linkages. In the financial sector, attention is being directed toward macro prudential regulations that are geared toward the stability of the financial system as a whole. The Third Basel Accord (Basel III) aims to dampen the pro-cyclicality of the financial sector and to reduce cross sectional systemic risks partly by introducing measures to address liquidity and issues of banks being too big to fail. In the macro arena, the facts that price stability was not sufficient to guarantee macroeconomic stability and that financial imbalances developed despite low inflation and small output gaps have highlighted the need for additional tools (macro prudential policies) to complement monetary policy in countercyclical management. Emerging markets face different conditions and have key structural features that can have a bearing on the relevance and efficacy of the measures. The chapters in this volume discuss the challenges of dealing with macro financial linkages and explore the policy toolkit available for dealing with systemic risks with particular reference to emerging markets. This report is organized as follows: chapter one is adapting macro prudential approaches to emerging and developing economies; chapter two is adapting micro prudential regulation for emerging markets; chapter three presents capital flow volatility and systemic risk in emerging markets: the policy toolkit; chapter four presents monetary policy and macro prudential regulation: whither emerging markets; chapter five deals with macro prudential policies to mitigate financial vulnerabilities in emerging markets; chapter six presents sailing through the global financial storm; and chapter seven presents operation of macro prudential policy measures.