C. P. Chandrasekhar’s Blog

Debt-strapped Sri Lanka has reached a staff-level agreement with the IMF, that promises access to $29 billion over a 4-year period under the institution’s Extended Finance Facility. Given Sri Lanka’s $51 billion external debt, that sum is extremely small. It also comes with a host of conditions varying from increases in fuel and electricity tariffs to increased taxation to reduce government deficits—policies that a government with limited legitimacy would find difficult to impose on an economically devastated population. Yet, the Sri Lankan government is hoping that the agreement would be passed by the IMF board, because it is a step…

India’s enforcement directorate, still preoccupied with unearthing corruption and money laundering among opposition politicians, has decided to turn its attention to those involved in the crypto business in the country as well. Raids on the offices of crypto-exchanges (which manage trades in and movements of these virtual coins) and a freeze on the assets of companies controlling them, have stalled crypto activity in the country. The Economic Times recently reported that the Enforcement Directorate (ED) is probing at least ten cryptocurrency exchanges for allegedly laundering more than Rs. 1,000 crore of money criminally acquired. Coming in the wake of a…

Financial markets in the so-called ‘emerging economies’ are in turmoil. At the end of May 2022, the Financial Times reported that the return delivered by emerging market (EM) sovereign bonds was around minus 15 per cent for 2022, the worst since 1994. The principal factor driving this trend was the exit of foreign fund managers and investors from emerging markets assets. According to the Institute of International Finance, between March and June 2022, $30.1 billion had flowed out of equity markets. With flows into debt instruments during that period amounting to a lower-than normal $7.5 billion, aggregate portfolio capital flows…

India is experiencing a job market crisis. Applicants for preferred jobs outnumber vacancies by numbers that make the process a lottery. The qualifications of these applicants far exceed the skills or knowledge required by many jobs. Attempts to influence or rig the appointments process to monetize scarcity are common. And the response to perceived malpractice or suspect policy shifts can be violent, as recently seen in appointments to the railways and the military. The argument that the crisis afflicts most market economies, including many developed ones, mitigates for some the disquiet the crisis should evoke. But what is missed in…

All is not quiet on India’s external economic front. The rupee seems to be on a trajectory of accelerating decline, with its value relative to the dollar (as per the Reserve Bank of India’s reference rate) falling from Rs. 76.4 at the beginning of April to Rs. 79.1 at the beginning of July. Driving that trend are a range of developments. To start with, India’s near-perennial trade deficit has widened in recent months as export growth remained sluggish and imports registered a sharp increase. In June, with exports estimated at $38 billion and imports at $63.6 billion, the trade deficit…

In a new turn to its advocacy of a conservative fiscal stance amidst a recession, the International Monetary Fund in the April 2022 edition of its “Global Financial Stability Report” has called for reining in bank credit to governments as a way of weakening the sovereign–bank nexus that was strengthened during the pandemic and ostensibly threatens bank stability. What is side-stepped is the real possibility that this additional thrust to limit government borrowing would only contribute to an intensification of the recession, adversely affecting bank profitability and increasing rather than reducing bank fragility. The IMF’s case seems to be driven by its…

The contours of the economic, political and humanitarian crises that Sri Lanka currently faces are now well known. With limited economic diversification, it has for long been an open economy that has found it difficult to earn the foreign exchange needed to finance its imports of goods and services. Structurally the Sri Lankan economy has remained highly export dependent even since gaining political independence in 1948, with the ratio of goods and services export to GDP touching almost 40 per cent in 2000 and standing at 30 per cent prior to the global financial crisis of 2008 and the Great…

When the world’s financial leaders met mid-April at Washington for the annual spring meetings of the International Monetary Fund and the World Bank, the mood was one of gloom. The world economy is in disarray, with world leaders clueless as to where it is headed or what can be done to prevent a possible collapse. In the April 2022 edition of its World Economic Outlook, the IMF has slashed its 2022 GDP growth forecast of six months ago by 1.3 percentage points to 3.6 per cent, and projects growth to remain below that level for the next two years. Inflation…

Injecting large amounts of cheap liquidity in the economic system has been result of increasing reliance on monetary policies post the Greenspan years. This has meant asset price inflation and accumulation of large amounts of legacy capital in the emerging and frontier markets. This legacy capital makes adoption of large expenditures on social-welfare difficult due to the risk of exit of capital. C. P. Chandrasekhar argues that this may be a worthwhile pain to endure for its benefits. Full discussion available at https://youtu.be/rI9Wt0WWP94

Countries in an economic rut require large fiscal expenditures to pull them out, but are stuck in a global financial framework that deepens inequalities. Recovery is difficult in the prevailing atmosphere of fiscal conservatism starting with the Greenspan years. Most debt meanwhile has been generated by advanced economies and China, as opposed to just 7% by developing countries. Full discussion available at https://youtu.be/rI9Wt0WWP94