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Argentina's Deal with the IMF: Will "Expansionary Austerity" Work?

December 18, 2018

Since July of 2018, the International Monetary Fund (IMF) has disbursed more than $20 billion of a $56.3 billion loan package to Argentina. The Argentine government is now the largest holder of the IMF's General Resources Account (GRA) funds. This paper looks at how the policies that the Fund and the Argentine government have agreed upon in their June Stand-By Arrangement (SBA) are expected to lead to an economic recovery; and whether they are likely to succeed.

Puerto Rico’s New Fiscal Plan: Certain Pain, Uncertain Gain

June 6, 2018

Puerto Rico's circumstances changed significantly with the devastating impact of Hurricane Maria in September 2017. The storm claimed the lives of an estimated thousands of people, destroyed the island's infrastructure, severely damaged over 472,000 homes, and completely shut down utilities. The Financial Oversight and Management Board for Puerto Rico estimates there to be at least $80 billion in damage from the storm, though a report from Puerto Rico's governor estimated it would take $95 billion to rebuild.This paper finds that the Board's new fiscal plan, like the previous one, is based on overoptimistic macroeconomic assumptions, downplays the negative impacts of continued austerity, and fails to address many of the structural problems at the core of Puerto Rico's lost decade, all while mandating a significant erosion of worker rights and reductions in public services.

The Pact for Mexico after Five Years: How Has It Fared?

June 1, 2018

The Pact for Mexico pledged to institute policies that would usher in a new era of growth and prosperity for Mexico, through the implementation of a series of structural reforms. The timeline for implementation of the proposed reforms extended to the second semester of 2018.This paper examines whether there has been progress toward the Pact's goals since it was signed; and whether any measures taken since then — including current economic policies — are likely to help Mexico break out of its long economic slump and forge a different path toward economic and social progress.Five years into the Pact for Mexico, it is clear from the available data that the Pact's promises to launch a new era of economic and social progress have not begun to materialize. The authors conclude that the country's persistent sluggish growth, poverty, and inequality are rooted in a set of important economic policy choices that have been made consistently for a long time.

The UK Economy at the Crossroads

March 6, 2018

Despite high levels of employment after eight and a half years of economic growth, the UK economy is facing some serious economic challenges: long-term rising inequality, real wages that are still below their 2009 peak, a collapse of productivity growth, and the worst level of regional inequality in the European Union. The unusual uncertainties surrounding Brexit also pose a serious threat that has been much discussed. However, the government's macroeconomic policies may also compound the risks associated with Brexit and make it more difficult to solve the economy's long-term problems. This paper looks at some of the details of the above challenges, with a focus on macroeconomic policy.

More Trouble Ahead: Puerto Rico's Impending Medicaid Crisis

October 4, 2017

Already in the midst of a fiscal crisis, Puerto Rico faces a long road to recovery from Hurricane Maria, a devastating storm it was ill-equipped to handle. The urgent efforts to address both the humanitarian needs and damage caused by the storm must also extend to solving the island's imminent Medicaid crisis, a preexisting condition that plagued Puerto Rico before the hurricane and that has been exacerbated by it.This paper examines the inadequate federal support received by Puerto Rico for its Medicaid program, and shows that ― barring immediate action from the US Congress ― the territory will not have sufficient funds to continue operating in 2018. While the cost of living is higher in Puerto Rico than the US average, health care services are the only item that is significantly less costly on the island.  Using 2016 Medicaid costs and looking at known migration patterns, we calculate what the federal government and states are likely to pay for providing Medicaid for Puerto Ricans moving to US states from 2018 to 2027 using two different migration scenarios. Under the more pessimistic scenario - a higher out-migration rate - more likely in the wake of Hurricane Maria, the cost for providing Medicaid to new Puerto Rican migrants stateside is $19.4 billion for the federal government and $12.3 billion among states, as compared to a total of $7.8 billion in Puerto Rico.

Life After Debt in Puerto Rico: How Many More Lost Decades?

July 18, 2017

As Puerto Rico enters the legal debt restructuring process, this paper examines the future prospects for an economy that has had no growth over the last ten years — a lost decade. The facts indicate that the fiscal plan approved by Puerto Rico's Financial Oversight Board will not lead to an economic recovery in the foreseeable future and that another lost decade, or worse, is a much more likely outcome. Nor will the proposed restructuring satisfy creditors, who may then further impede economic recovery by taking legal action in an attempt to collect the full value of the bonds they hold. The paper also notes the recent historical and structural causes of the economy's decline, which led to the debt crisis; and that these, too, will need to be addressed if Puerto Rico is ever to have a sustainable recovery.

The French Economy, European Authorities, and the IMF: "Structural Reform" or Increasing Employment?

April 18, 2017

This paper looks at two competing views among economists and other observers, of how the French economy can overcome mass unemployment and have a more robust recovery. One view sees the unemployment and economic stagnation of the past decade as overwhelmingly structural. An alternative narrative, mostly from the Left but with some elements adopted by the far Right, sees the most immediate problem as one of inadequate demand in the economy.The authors find that France's unemployment rate, which has averaged 9.1 percent over the last decade, is not the product of "structural" barriers, but rather due to political choices made by the French government and European authorities. With inflation well below target, real borrowing costs at about zero, and a low current interest burden on the debt, it would make much more economic sense for the government -- and the eurozone as well -- to pursue an expansionary fiscal policy that increases employment.

Did NAFTA Help Mexico? An Update After 23 Years

March 29, 2017

This paper compares the performance of the Mexican economy with that of the rest of the region and with its own economic performance, over the 23 years since NAFTA took effect, based on the available economic and social indicators. Among the results, it finds that Mexico ranks 15th out of 20 Latin American countries in growth of real GDP per person, the most basic economic measure of living standards; Mexico's poverty rate in 2014 was higher than the poverty rate of 1994; and real (inflation-adjusted) wages were almost the same in 2014 as in 1994. It also notes that if NAFTA had been successful in restoring Mexico's pre-1980 growth rate -- when developmentalist economic policies were the norm -- Mexico today would be a high-income country, with income per person comparable to Western European countries. If not for Mexico's long-term economic failure, including the 23 years since NAFTA, it is unlikely that immigration from Mexico would have become a major political issue in the United States, since relatively few Mexicans would seek to cross the border. This report updates a version released in February 2014.

Decade of Reform: Ecuador's Macroeconomic Policies, Institutional Changes, and Results

February 10, 2017

This paper looks at some of the institutional, policy, and regulatory changes enacted by the government of Ecuador, as well as overall economic and social indicators, over the decade since the Correa government took office.

The Housing Bubble: Is It Back?

November 28, 2016

In the last decade, there was an unprecedented run-up in house prices in most parts of the country. It was easy to recognize this run-up as a bubble since there was no remotely corresponding increase in rents, which for the most part just tracked inflation during this period. There was also no evidence of a shortage of housing supply. Housing starts were at near record highs from 2002 to 2005. In addition, the vacancy rate as reported by the Commerce Department was at near record highs through most of this period. With weak job and wage growth throughout most of this period, it was possible to recognize the run-up as a bubble even without knowing anything about the proliferation of bad loans in the mortgage market.The run-up in real house prices in the bubble years was almost completely reversed in the subsequent crash. While the first-time homebuyers' tax credit temporarily stopped and reversed the decline, house prices continued to fall until the spring of 2012. Since then, the market has recovered much of the lost ground. While it is still 20.1 percent below the bubble peaks of 2006 in real terms, inflation-adjusted house prices are now 37.7 percent above their level in 1996, before the beginnings of the bubble.While these prices may seem somewhat high, there is little basis for concern that the national market has again entered a bubble.