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Government Payrolls Edging Up, But Still Below Pre-Recession Levels

Brookings Institute Blog - 4 hours 16 min ago

Federal, state, and local governments employ about 15 percent of U.S. civilian workers, so budgetary conditions often have labor market implications. Total government employment fell sharply in the aftermath of the great recession, and, despite recent upticks, has yet to recover in a material way. Although private payroll employment surpassed its pre-recession peak in March 2014, total government employment is still more than 2 percent lower than it was in mid-2008, and about 7 percent below its pre-recession trend.  

State and Local Employment

State and local employment—which accounts for about 90 percent of total government employment— declined sharply between 2008 and 2012, as states and localities trimmed payrolls in an attempt to balance their budgets, as shown in the following chart from the Hutchins Center’s Fiscal Barometer. Employment has edged up since 2012 as state and local budget conditions have improved, although total employment still remains more than 3 percent below its pre-recession peak. 

The declines in employment were widespread. Local employment—about ¾ of total state and local employment—remains just over 3 percent below the 2008 peak, with reductions in both education workers (mostly K-12 teachers) and non-education workers (police, fire, etc.). State employment is also about 3 percent lower now than in 2008, although those cuts were borne by workers outside of education.

Federal Employment

Federal employment outside of the uniformed military accounts for only about 10 percent of total government employment. As shown in the following chart from the Hutchins Center’s Fiscal Barometer, federal employment increased during 2009 and 2010, in part as the result of a lower propensity for federal workers to quit or retire during the recession. Tight spending conditions in recent years reversed that trend, and federal employment declined by an average of almost 5,000 jobs per month from the beginning of 2013 to mid-2014. Employment has stabilized, on net, since then, and we expect federal employment to remain relatively stable in the coming year. All told, federal employment (excluding uniformed military) is now about 4 percent below its level when President Obama took office in January 2009.  

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Categories: Blog

Reflections on Defense Secretary Hagel's Tenure

Brookings Institute Blog - Mon, 11/24/2014 - 09:44

I was never convinced that Secretary Hagel was the strongest choice for the position two years ago, but now that he is being pushed out, I am not sure that he's the fair target for an administration foreign policy that--whatever its other strengths, and they remain considerable--has made most of its mistakes in and from the White House.

For example, the departure from Iraq in 2011 was something that neither Gates nor Panetta could prevent, apparently, even though both had opportunities to influence that debate. And that problem, together with the breakdown in Iraqi politics that ensued in 2012, and then the beginnings of the Syrian civil war (and President Obama's decision not to get involved in that war that he made himself in 2011/2012) all predated Hagel's tenure.

Plus, as best I could tell, Hagel was a fairly low-key but still effective promoter of the rebalance to the Asia-Pacific, making the mechanics of new basing and operational patterns work out smoothly and visiting a number of allied nations, as well as China, along the way.

And on the defense budget, Hagel managed rightly to push back against those who would have happily lived with full sequestration-level cuts to Pentagon spending, and pushed back as well, as best I can tell from the outside, against those who thought that the Army could become the principal bill-payer for defense cuts on the grounds that we were supposedly entering an era of no more big ground wars (as the 2012 Defense Strategic Guidance trended towards arguing, even if not quite that starkly).

So I'm not going to pile on and blame him for the current problems. That said, there may well be stronger options available to the president, and going forward, we now have no choice but to find out!

Authors Image Source: © Larry Downing / Reuters         
Categories: Blog

Safeguarding the Role of Displaced Communities in Decisions about Relocations

Brookings Institute Blog - Mon, 11/24/2014 - 08:34

Consultation, Consent, Participation: Words Matter

Central to any discussion about planned relocations is the notion that communities to be affected should be involved in the process. In legal terms, this is frequently referred to as ‘consent.’

But rather than thinking about community engagement as an ‘either-or,’ ‘black-white’ phenomenon, it might be more useful to think of community participation as a continuum; what we have elsewhere called a ‘participation spectrum.’ ‘Consultation’ refers broadly to the process of soliciting and listening to the opinions and perceptions of affected populations. ‘Participation’ implies a deeper engagement that may include control over decision making. Both form part of a process in which key stakeholders influence and share control over initiatives and decisions that affect them. In the context of working with internally displaced persons (IDPs), we came up with the following spectrum, from least to most engagement.

  • Passive participation or information sharing in which the affected population is informed, but not heard (e.g. dissemination of documents or public briefings by officials).
  • Information transfer – affected populations supply information in response to questions but do not make decisions and do not influence the process. (This often takes the form of field visits and interviews.)
  • Consultation – affected populations are asked to offer their opinions, suggestions, and perspectives but are not involved in decision-making or implementation of projects (and there is no guarantee that their views will influence the process.) Consultations can take multiple forms, including focus group discussions and interviews.
  • Collaboration – the affected population is directly involved in needs analysis and project implementation. They may also contribute to agency-led projects which are part of the relocation process with labor and other skills. (e.g. supplying labor for the construction of their new houses in an agency-sponsored project – although providing labor alone does not constitute participation.)
  • Decision making and control of resources – the affected populations are involved in relocation assessment, planning, evaluation and decision making. (This may involve, for example, a working group or joint-committee of agency and local leadership.)
  • Local initiative and controlthe affected populations take the initiative; the project is conceived and run by the community, potentially with the support of the government or outside agencies.

When it comes to planned relocations, there are certainly cases at both ends of the spectrum. On the one hand, there are cases where communities are simply informed that they will have to be relocated – either in support of a greater public good or because the government has determined that their lives are at risk. On the other hand, Robin Bronen has written about a community-led initiative is in Alaska, where the Newtok Traditional Council has developed a detailed relocation plan with both short and long-term objectives and projects and adopted a set of guiding principles to underpin the relocation process.[1]

  • Remain a distinct, unique community—our own community.
  • Stay focused on our vision by taking small steps forward each day.
  • Make decisions openly and as a community and look to elders for guidance.
  • Build a healthy future for our youth.
  • Our voice comes first—we have first and final say in making decisions and defining priorities.
  • Share with and learn from our partners.
  • No matter how long it takes, we will work together to provide support to our people in both Mertarvik and Newtok.
  • Development should:
    • Reflect our cultural traditions.
    • Nurture our spiritual and physical wellbeing.
    • Respect and enhance the environment.
    • Be designed with local input from start to finish.
    • Be affordable for our people.
    • Hire community members first.
    • Use what we have first and use available funds wisely.
  • Look for projects that build on our talents and strengthen our economy.[2]

As we have seen in the case of IDPs in humanitarian situations, even when there is a will to engage with the affected communities on decisions affecting their lives, there are difficulties. If it isn’t their initiative, how can communities be involved in the assessment of the need for relocation? Do they take the government’s word? Are there provisions for the communities themselves to carry out their own assessment?  Who represents the affected communities? If it is traditional leaders or elected representatives, are there any provisions for regular communication between the representative and the community represented? For relocations, is a majority decision significant to bind the whole community? What if there are minority interests that oppose the decision? Is everyone bound to such a decision? What if people change their mind? How can communities be involved in monitoring implementation of the resettlement plan? What if the government assesses the situation as positive and the communities reach a different conclusion? How can communities be supported to participate actively without causing inordinate delays?

Are the same mechanisms relevant across the board? For example, it may be that communities affected by the effects of sea-level rise (which generally occur over years or decades) can take the time to develop inclusive participatory processes – even if they take years. Communities which need to be relocated because of the effects of a sudden-onset disaster may find themselves in a very different position. While consultation/participation are still required in these cases, I would argue, it may be that an expedited process is needed. And (this is unpopular) there may be cases where consultative mechanisms are inappropriate because the risk is too acute for affected communities (e.g. a landslide liable to wipe out a village with the next heavy rainfall)?

Resolving issues around consultation, participation and consent are crucial to relocation decisions; they are also likely to reflect the trust people have in their governmental institutions and there have been many cases where communities were told they were being relocated to protect them from harm while in fact, the real reasons were economic or political.

[1] Robin Bronen, ‘Climate-Induced Community Relocations: Creating an Adaptive Governance Framework based in Human Rights Doctrine’ (2011) 35 NYU Review of Law and Social Change 357, 388.

[2] Agnew Beck, Strategic Management Plan Newtok to Mertarvik (Anchorage, 2012), cited in Bronen, above n 23, 229.

Authors Image Source: © Nathaniel Wilder / Reuters         
Categories: Blog

Acting Collectively: A Better Way to Restructure Government Debt

IMF blog - Mon, 11/24/2014 - 08:28

By Sean Hagan 

(version in Español)

To restructure or not to restructure? That is a question few governments would like to face. Yet, if a country does find itself with an unsustainable debt burden, one way or another, it will have to be restructured. And if that time comes, it is better for the debtor, creditors, and the entire financial system that the restructuring be carried out in a prompt, predictable, and orderly manner.

The global financial crisis ushered in a new wave of sovereign debt crises that has reinvigorated discussions over the current framework for sovereign debt restructuring. The experience with Greece’s debt restructuring in 2012 and the ongoing litigation involving Argentina, in particular, provide a salutary reminder that vulnerabilities remain.

Recognizing the need for reform, the International Monetary Fund recently endorsed changes to sovereign bond contracts designed to improve the sovereign debt restructuring process. The reforms—which are detailed in an IMF paper—aim to minimize the risk that a restructuring supported by a large majority of a sovereign’s creditors could be obstructed by a small group of creditors. Importantly, the reforms resulted from a successful, 18-month process of consultation and good collaboration among the IMF, sovereign issuers, market participants, and other representatives of the official sector. The International Capital Markets Association (ICMA) and U.S. Treasury were key counterparts in our discussions.

At the Fund, we see these reforms as part of a broader effort to reduce the cost of crisis resolution through market-based solutions. This includes reviewing our lending framework to help our member countries address debt sustainability problems more effectively. We will also be looking at issues surrounding the process of engagement during the restructuring period—both between the debtor and its creditors, and among creditors themselves. Through these reforms, we aim to reduce the costs of crises for everyone.

What the reforms achieve

The first big change is to the “pari passu” clause—a boilerplate clause that was given a new lease on life by the New York courts in the recent Argentina litigation. As a result, a minority of creditors succeeded in paralyzing a restructuring that was approved by 93% of bondholders. The new clause that we endorse explicitly rules out the interpretation taken by the New York courts—namely, requiring equal payment to all bondholders—and limits it to a protection of legal ranking.

The second key reform is to “collective action clauses,” which allow a qualified majority of bondholders to agree to a debt restructuring. While the widespread adoption of collective action clauses in the early 2000s was a major development, they are still highly susceptible to obstructive behavior by a minority of creditors—so-called “holdout” creditors. Why? Most of these clauses require a majority of each bond series to vote in favor of the restructuring. As a result, holdouts can acquire a blocking stake (normally, 25% of that series) at a relatively low cost, and thereby prevent the restructuring of that series. This limitation was evident in the 2012 Greek bond restructuring, where holdouts were eventually paid out in full—to the tune of €6.5 billion.

The new collective action clauses allow a restructuring to be carried out on an aggregated voting basis. Under the most robust form of aggregated voting, a restructuring can be passed by a 75% majority across all bond series. This does not shift the balance of power from creditors to debtors—the restructuring still needs the backing of a 75% supermajority of creditors. Rather, it takes power away from an obstructive minority and restores it to the body of creditors as a whole. This gives certainty to creditors that either no one is in, or everybody is in. The support of creditors was a key reason for ICMA adopting the single voting procedure in their  new standard bond terms.

To ensure adequate protection for creditor rights—as well as market acceptability and legal enforceability in key jurisdictions—the use of the single voting procedure described above is subject to important safeguards. In particular, all creditors must be offered the same restructuring terms, or menu of terms. There are also protections against sovereigns influencing the vote, for example by buying up a large share of the bonds. At the same time, the new clause gives issuers and creditors the flexibility to use other voting procedures—for example, in order to offer different terms—depending on the needs of the restructuring.

Putting the new model to the test

In a critical first move, Mexico, Vietnam, and Kazakhstan have recently issued bonds incorporating the new clauses. Importantly, the use of the new clauses did not have any meaningful price impact. The next step is for the clauses to be adopted widely by sovereign issuers, which is something we will actively encourage and monitor. It is important to emphasize that the IMF is endorsing critical features of these clauses—not specific language. It is recognized that, in various jurisdictions, these features can be drafted in different ways.

Are these reforms a panacea? No. Importantly, there remains an outstanding stock of sovereign bonds (worth a significant $900 billion) that do not contain the new clauses, a large portion of which do not mature for another 10 years. The extent of the risk posed by these “legacy bonds” for debt restructurings that may occur during this transitional period will depend on how the New York court decisions are interpreted in future litigation. Going forward, we will be monitoring this issue closely and advising our member countries on what additional steps could be taken to manage the transitional risks. This could include issuers swapping their old bond contracts for new ones  even before they mature. More generally, of course, countries must put in place sound policies to prevent their public debt burdens from becoming unsustainable in the first place.

Relative to some of the other reforms currently being considered—including at the United Nations—these contractual reforms may appear somewhat incremental. Policymaking, however, is often about achieving incremental but meaningful progress. Just as important as the outcome, the process reflected excellent collaboration between the private and official sectors. In this light, we believe that the latest reforms represent a good outcome from a good process—one that makes it a whole lot easier to carry out sovereign debt restructuring when countries need it.


Categories: Blog

Rice Price Volatility- Why It Matters For Poverty Reduction in Myanmar

 

There are many kinds of rice and one of the most popular varieties in Myanmar is called Emata. This word literally means that it’s so delicious that a visitor is still sitting and eating. Emata lives up to its name- people in Myanmar love it for its long grain, fluffy and slightly sticky texture after cooking. This rice variety is also one of their main exports.

People find it troubling that the price of Emata has risen by more than 40% over the last five years. The price of rice has also been fluctuating sharper than in neighboring Thailand, Vietnam or Cambodia. Since Myanmar’s domestic rice market is weakly integrated into global markets, domestic factors are the primary reason behind high price fluctuations.

Categories: Asia, Blog

Cuba’s Foreign Investment Invitation: Insights into Internal Struggles

Brookings Institute Blog - Fri, 11/21/2014 - 12:00

Earlier this month the Cuban government appealed to international companies to invest over $8 billion in 246 specified development projects. The 168-page Portfolio of Opportunities for Foreign Investment offers fascinating insights into the current distressed state of the Cuban economy – and into the competing development visions of its economic planners. Within the lengthy document, there are many assessments and proposals that suggest that Cuban authorities are prepared to dramatically open their economy to international capital, yet there are also many provisos that suggest a much more cautious strategy.

This is not the first time the Cuban authorities have issued a wish-list of projects open to foreign firms, but this edition is much more ambitious and reveals dramatic progress – and tensions – in officials’ thinking about their nation’s economic future.

Careful reading of the publication, prepared by the Ministry of Foreign Trade and Investment, will leave potential foreign investors with few illusions: Cuba will remain a state-driven economy dominated by large government holding companies and the authorities will dictate the direction and pace of change. Most foreign ventures will come with majority Cuban ownership.

But it is refreshing to find this admission: “The growth rates of Cuba’s GDP [gross domestic product] have been moderate and low, lower than the average for the region. In order to turn this trend around, accumulation rates higher than 20 percent are required to permit a GDP growth rhythm increase of 5 to 7 percent.” (Oddly, the details in this second sentence are omitted in the original Spanish version.) In that current national investment rates hover around 10 percent, to fill the gap annual foreign investment inflows must exceed by a large margin the $2.0 to 2.5 billion publically proposed by Minister of Foreign Trade and Investment Rodrigo Malmierca.

The government publication provides remarkably frank, data-rich surveys, sector by sector, of current production capabilities and shortfalls – must reading for specialists in the Cuban economy. It signals clear development priorities: energy (conventional and renewables), agriculture and tourism (Table 1[i]). On this, a consensus was probably easy to reach: investment in domestic energy production is critical to lessen a dangerous dependence on a faltering Venezuela. Cuba is spending way too much of its scarce foreign exchange resources on food imports, which is a genuine food security crisis. And tourism offers the only ready medium-term option for rapid growth in badly needed hard-currency earnings.

Tourism Management Contracts and Golf-Condo Destinations

The tourism section is particularly revealing of the internal tensions among Cuban policy planners: many attractive projects juxtaposed with well-delineated boundaries on the scope of foreign investment.

The potential tourism projects are sketched in striking detail. Cuba would like to build 21 new hotels in the Cienfuegos, Trinidad, Guardalavaca, Playa Santa Lucía and Covarrubias areas. The state companies that own hotels throughout the island are seeking new management contracts; 19 of them are for new hotels and 14 are for existing hotels and facilities.

Of particular interest to investors who might like to own condos on Cuban golf courses: a new government entity (belonging to the Palmares holding company), CubaGolf, will “promote the island as a golf-holiday destination.” CubaGolf is currently in negotiations with several foreign partners to form joint ventures to build and manage tourism-golf-condo complexes. One such potential joint venture in Holguin province, with a $380 million price tag, would boast two 18-hole golf courses, a 5-star hotel with 170 rooms and 1,300 housing units available for “in perpetuity” purchase. (Land ownership will not be transferable.) Hotel rates are estimated at $130 per night for a couple and a game of golf will be priced at $70 to 85.


The entrance sign of the Varadero Golf Club, around 84 miles from Havana.

Yet the government is setting aside some of the juiciest tourism opportunities for itself. In the high return-low risk locations of urban Havana and Varadero beaches, investor participation “will be the exception.” The safe yields are reserved for state-owned firms, especially Gaviota (linked to the armed forces), which the document proudly remarks “is the fastest growing hotel holding company.” Gaviota will restrict its foreign partners to management contracts and will demand that the partner provide not only construction financing but also international marketing, to assure profitable occupancy rates.

Burdensome Restrictions in Agriculture

The agricultural policies also suggest compromises between those planners who see the value of international engagement and private enterprise and those who fear that too many concessions risk undermining state controls as well as endangering the profitability of state-owned enterprises.

The section on agriculture makes this startling admission: of 6.3 million hectares of agricultural land, only 2.6 million hectares are being cultivated, despite years of official efforts to lure Cubans back to the land. But this document does not explore the adverse incentive structures responsible for this national catastrophe. Rather, we learn that the nation’s agro-industry is controlled by three large holding companies (GEIA, Cubaron and Coralsa) overseeing 108 enterprises. Most land is firmly owned by the state, allowing just 15 percent for private farmers and another 7 percent for farmer cooperatives.

Nevertheless, Cuba now seeks joint ventures in cattle, pork and poultry production, as well as in citrus, peanuts and shrimp farming. Specifically, Cuba would welcome a foreign partner willing to invest $10.3 million to create a “leading brand on the international level” of premium coffee, grown in selected micro-regions in the hills of Guantanamo province. Opportunities in agro-industry include greenhouses for vegetables, hog production, soy processing, confectionary facilities and dry yeast production.

Yet the sugar industry, however depressed, will remain firmly in the hands of the Cuban state. Only four mills will be open to foreign management contracts (expanding on the earlier management contract signed with a Brazilian firm to upgrade a sugar mill in Cienfuegos). The modest aim of each $40 million investment is “to recover” historic production levels.

The agricultural project list explicitly bars foreign investment from the tobacco and cigar industries (cigar marketing is already in the hands of a major British firm, Imperial Tobacco). Also excluded is lobster fishing and processing.

Energy and Industry Offerings

In the critical energy sector, Cuba is wide open to joint ventures in extracting petroleum from on-shore and off-shore blocks. But the goal is to raise the percentage of electricity produced from renewable sources from the current four percent to 24 percent by 2030. Foreign participation is welcome in hydro, biomass and solar, and, exceptionally, Cuba will allow 100 percent foreign ownership in wind farms, with an aim to invest $285 million to generate 174 megawatts in Guantanamo province and $200 million to generate 102 megawatts in Holguin province. But these energy ventures, whether partially or fully foreign owned, will have to sell their output at pre-fixed prices to state distribution systems.


Solar panels donated to Cuba by China in Parque Fotovoltaico.

Cuban consumers have suffered from shortages of beer and soda, for reasons rarely explained by the authorities. Now we have a strong hint at the cause: shortages of aluminum cans! The proposed portfolio of investments features a joint venture ($21.8 million) to produce 577 million cans, the principal clients being two existing joint ventures: the beer firm Bucanero and the bottled water and soda company Los Portales (Nestlé).

The proposed portfolio includes a wish-list for joint ventures in industrial production. Foreign capital is sought in these industrial projects:

Cuba would also like foreign investors to help produce computer desktops and tablets, with a $9.6 million investment. Current demand is estimated at a remarkably modest 75,000 computers (for a population of over 11 million).

The Mariel Free Trade Zone

With the assistance of a major Brazilian construction company, Cuba has erected the Mariel Free Trade Zone (FTZ) west of Havana, facing the Florida Straits. Announced nearly a year ago with great fanfare, no major investments have yet appeared, although the government insists that many proposals are under serious consideration. For the Mariel FTZ, the Portfolio of Opportunities lists 25 export-oriented projects emphasizing medicine, agro-industry and light industry:

One partial explanation for the slow pace of project approvals at Mariel: the zone’s senior development officer, Ana Teresa Igarza, admitted to the Communist Party daily Granma that the industrial sites are not yet fully leveled nor are they hooked up to basic infrastructure!

But the problems run much deeper: previous Cuban efforts to launch free trade zones floundered on the requirement of hiring expensive labor through government employment agencies, and the continuing closure of the most logical export market, the nearby United States. (Interestingly, Portfolio of Opportunities omits reference to the U.S. economic sanctions that prohibit investments by U.S. firms and citizens.)

Cuba’s recently amended foreign investment laws appear to allow investors greater flexibility in setting wage scales, but this potentially promising reform, and its impact on labor costs, remains to be fully tested in practice.

Contradictory Impulses

Overall, Cuba’s Portfolio of Opportunities, with its many conditions and caveats, will raise eyebrows in the international investor community:

  • Firms must “guarantee” foreign markets, and their business plans must provide projections on the impact on the balance of payments.
  • In the selection of foreign partners, the Cuban government will “favor the diversification of different countries.”
  • Privatization of state-held enterprises is ruled out (although the transformation of smaller state businesses into cooperatives in the service and construction sectors is proceeding apace).
  • Foreign investment may partner with cooperatives but not with the emerging small-scale private enterprise. Readers searching the document for references to the much heralded self-employed "cuentapropistas" will be frustrated.

In sum, the 2014 Portfolio of Opportunities for Foreign Investment – with its contradictory combinations of frank analysis and attractive offerings and its demanding requirements and multiple barriers – opens an unusually transparent window into the on-going struggles within the Cuban elites: among those that wish to power ahead and integrate their economy into global capital and trading markets, those that adhere to the revolution’s founding statist nationalism and those that seek a middle road of carefully controlled change.

[i] All tables draw on data available in Ministry of Foreign Trade and Investment (MINCEX), Portfolio of Opportunities for Foreign Investment, Accessed November 20, 2014, http://www.cepec.cu/cepec/sites/default/files/Cuba_cartera-de-oportunidades_2014_ENG.pdf.

Authors Image Source: © Enrique de la Osa / Reuters         
Categories: Blog

Major Decisions: Graduates' Earnings Growth and Debt Repayment

Brookings Institute Blog - Fri, 11/21/2014 - 10:02

Today, roughly 70 percent of American bachelor’s graduates leave school with debt, and for those that do, the median balance is $26,500. While career earnings tend to grow rapidly, student loans are typically repaid in the first decade of the career when earnings are at their lowest. For the graduate with typical debt level and earnings, payments under the standard 10-year repayment plan take up 14.1% of earnings in the first year, but gradually fall to only 6.5% of earnings in the tenth and final year. This repayment strategy, however, can place a particularly heavy burden on graduates from majors whose earnings start low before rising later in the career. For these students, college may not provide the cash flow needed to easily pay off loans in years immediately following graduation.

Using major-specific earnings data from the U.S. Census Bureau’s American Community Survey, The Hamilton Project has created a student loan repayment calculator that shows the share of earnings necessary to service traditional loan repayment for 80 majors. You can choose or search from each of these majors, as well as change the size and features of the student loan using the selection boxes above. You can even compare repayment from one major with that of another. By default, loan features reflect the experience of a typical graduate borrower, and earnings include part-time workers and those who experience unemployment throughout the year (but exclude those with graduate degrees, as these individuals often accumulate additional debt). 

See the accompanying interactive feature, Undergraduate Student Loan Calculator, to calculate the share of earnings necessary to service traditional loan repayment for 80 majors.

An accompanying economic analysis explores the challenges currently facing the student loan repayment system, which often creates a heavy burden on recent graduates by having them make payments in the beginning of their careers when their earnings are low. The analysis yields the following key conclusions: 

First, earnings trajectories differ across majors but nearly all of them show rapid growth in the early-career years.

  • Graduates see steep earnings growth in the first five years after earning a degree: the typical increase in median earnings over this period is 65 percent. This implies that a focus on earnings right out of school—either as an indicator of earnings potential or loan repayment ability—can be misleading.
  • Graduates from majors with lower initial earnings are more likely to see faster earnings growth in early-career years. In the first five years after degree receipt, graduates in some of these majors show increases of over 100 percent while graduates from other majors see gains of no more than 30 percent.

Second, the burden of student loan repayment diminishes rapidly as earnings grow, but it can still be difficult for the graduates of some majors under typical repayment strategies and loan levels.

  • For a bachelor’s graduate who borrowed, and who had typical earnings and student debt, payments under the standard 10-year repayment plan take up 14.1 percent of earnings in the first year, but only 6.5 percent of earnings in the tenth year. 
  • Among borrowing graduates with typical earnings and debt levels, eight in ten will pay more than 10 percent of their earnings in the first year of repayment. However, fewer than one in eight will pay such a share of earnings in the fifth year, and none will by the tenth year.
  • However, the share of earnings necessary for loan repayment varies substantially across majors. With typical earnings and student debt, borrowing graduates in drama and theater face payments of 24 percent of their earnings during the first year of repayment, with this fraction gradually falling to 10 percent during the tenth year. Graduates from energy and extraction engineering, on the other hand, experience repayment shares of only 7 percent and 4 percent, respectively, over the same horizon.
  • Because student loan debt is fairly similar across majors, the spread in earnings repayment shares over the majors is mostly driven by differences in earnings trajectories.
  • This mismatch between the timing of repayment of student loans in early career and higher earnings in mid-career can be mitigated in part through income-based repayment plans. For borrowers with debt of $26,500—the typical or median amount—99 percent of graduates would qualify for the most generous income-based repayment plan in the first year of the career, 82 percent would in the fifth year, and 54 percent would in the tenth year.

Our goal in providing this analysis and interactive feature is to highlight earnings and student debt information that can help consumers—students and their families—make the best decisions regarding their higher-education investments. We hope the analysis and interactive feature will be a springboard for discussion regarding educational investments, financial aid and loans, and career choices.

  • For the full economic analysis, click here.
  • For the student loan repayment calculator, click here
  • To explore career earnings by college major, click here.
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Categories: Blog

Japan in Recession: Questions to Ask on the Future of Abenomics

Brookings Institute Blog - Thu, 11/20/2014 - 13:51

Japan is back in recession. This was the shocking news circulating the world after the government announced that, contrary to the expected mild recovery during the third quarter of 2014 (forecasted at 2.2 percent annualized GDP growth), the economy actually shrank by 1.6 percent. This shattered any expectation that Japan could engineer a quick V-recovery after the economy took a dive (shrinking 7.6 percent in annualized GDP) in the aftermath of the first increase of the consumption tax in 17 years last April from 5 percent to 8 percent.

The figures on Japan’s economic performance over the past six months matter greatly. They were instrumental in Prime Minister Abe’s decision to delay the second increase in the consumption tax by 18 months (the increase to 10 percent now has a pushed-back target date of April 2017); and to call for a snap election to renew his public mandate after this important change in the course of economic policy. But the figures also matter because they have forced us to ask some of the most poignant questions regarding the future of Abenomics. They have forced policymakers to recognize that in order to restore the Japanese economy to health, it will be necessary to prioritize amongst the goals of economic stimulus and fiscal consolidation. This implies that difficult choices must be made on which policy measures to put on the front and back burners.

Undoubtedly, in the long-term, economic growth, fiscal rehabilitation, and structural reform are essential to Japan’s sustained economic recovery. But in the short to medium term, progress on one front may undermine achievements in other areas. So when fiscal policy swung from all-out stimulus last year to fiscal tightening with an increase in the consumption tax this spring, consumer spending took a big hit. Hence, the effort to boost demand in Japan fell flat. The image of the three arrows of Abenomics flying in unison now appears less convincing.

Japanese policymakers—and heavy-weight economists on both sides of the Pacific—have engaged in an intense debate on which form of credibility matters most for Japan at this juncture: staying the course on increasing taxes (fiscal credibility) or steadfastness in the anti-deflationary campaign (monetary regime change credibility). Advocates of the former worry about financial turbulence in the stock and bond markets if Japan, the industrialized country with the highest public debt (at 240 percent of GDP), sends the message that it is politically impossible to raise taxes. Moreover, longer term challenges loom as it will not be possible to fund the pensions and healthcare expenses necessary for a rapidly ageing population. However, supporters of delaying the tax increase argue that overcoming the deflationary trap is the first order of business, and that it will not be possible to convince firms to invest and raise wages and consumers to spend more money in a recessionary climate: no virtuous cycle of economic growth will ensue.

Achieving the 2 percent inflation target rate has proven an elusive goal—as attested by the major expansion in the quantitative easing program recently engineered by Bank of Japan President Kuroda (despite a divided board vote) to a whopping 80 trillion yen per year (an increase of 10-20 trillion yen per year). Because additional fiscal tightening risks further economic contraction, it puts the anti-deflationary campaign at risk. Hence, supporters of delaying the consumption tax increase make the compelling case that—when forced to choose—growth has to come first, because with a shrinking economic pie it will be an uphill battle to service the debt and to overcome zero-sum dynamics in the structural reform agenda.

This was Prime Minister Abe’s choice in postponing the tax increase. In many ways, his calculation was made easier by the dismal GDP figures. If the nascent recovery that most economists expected for the third quarter had materialized, the decision on the consumption tax would have been a much more contested one. But who can fault him for not moving ahead with raising taxes when the economy is in recession?

And yet, there are still fundamental questions in the eventful decision to postpone the tax increase that require answers:

Why call for a snap election to renew a mandate that already exists?

The Japanese public is overwhelmingly in support of the tax increase postponement. The main opposition party, the Democratic Party of Japan, who negotiated the original tax-social security reform grand bargain with the ruling Liberal Democratic Party (LDP), concurs on the need for the delay, and the tax legislation itself grants the Prime Minister the discretion to decide on the timing of the second installment of the tax increase depending on the state of the economy. This is an unnecessary election for the purpose of delaying the tax increase, but it is an effective electoral strategy. By choosing the timing of the election, the ruling party seeks maximum electoral advantage. But the election should also be used to recommit to the cause of economic reform. By winning now, the LDP will not have to convene another Lower House election for another four years, creating political space to deliver on bolder reforms on deregulation, market opening, and labor market flexibility. Economic revitalization is the undisputed mandate from the public and the only long-term winning political strategy for any party in Japan.

What can be done differently in the next 18 months to restart the engines of growth and restore fiscal credibility?

The fall in real wages and the reluctance of firms to invest their sizable cash reserves and raise regular wages (and not just seasonal bonuses) have foiled efforts to boost demand-led growth in Japan. The government has secured an 18 month reprieve on the tax front, but absent progress in these core areas we can expect déjà vu in April 2017: a fragile economic recovery thwarting efforts to raise taxes and achieve fiscal sustainability. The government must deliver on the productivity-enhancing structural reform measures, but the onus on wages and investment is largely on corporate Japan. It should be all hands on deck at this critical juncture in Abenomics.  

Authors Image Source: © Issei Kato / Reuters         
Categories: Blog

A Refugee and Parole Program for Central American Minors

Brookings Institute Blog - Thu, 11/20/2014 - 11:50

Vice President Biden’s announcement that the State Department and the Department of Homeland Security (DHS) will establish a refugee resettlement program to enable minors to seek refugee and parole status in the United States is most welcome. The new program was announced at a summit meeting of three Central American presidents on November 14. It forms part of U.S. efforts to address the crisis of children, together with young mothers, crossing the border in the thousands at the Rio Grande valley to reunite with family members in the United States. The program begins this December.[1]

The U.S. government could have relied upon the declining number of unaccompanied minors arriving from El Salvador, Guatemala and Honduras to avoid any obligation to address the underlying problems. Instead, following Biden’s remarks, the State Department announced straightforward procedures that offer procedural and safe passage into the United States either as a refugee or with parole status. Instead of risking their lives through a treacherous journey to reach the U.S. southern border, unmarried minors under 21-years-old can now be processed in their own countries.

From its high peak of 16,404 unaccompanied minors (0-17-years-old) from El Salvador, 17,057 from Guatemala and 18,244 from Honduras in FY 2014, which ended on September 30, the number of apprehensions at the U.S. border has fallen significantly.                       

In October 2014, 1,551 unaccompanied minors were apprehended at the Rio Grande Sector compared to 2,652 in October 2013, a 42 percent reduction year on year. However, in the same geographic sector the number of family unit apprehensions increased by 6 percent over the same period.[2] The numbers indicate that a significantly reduced number of unaccompanied children are reaching the southwest border, but mothers and their young children continue to move northward.

Most arrive in search of a parent or close family member. According to a survey carried out by the UN High Commission for Refugees, 48 percent claim that violence in their community forces them to flee. A further 21 percent of the children surveyed claimed abuse and violence from a caretaker in their home.[3] Others seek better economic opportunities, and many claim a combination of all three factors. The State Department recognized that the violence from criminal gangs in the three sending countries, together with the presence of a parent in the United States, provided adequate basis for determining whether the minor was eligible for refugee status, and failing that parole status.

Refugee status

A parent who is legally in the United States can initiate the petition for the minor child or children as refugees with the help of a designated resettlement agency. (A broad range of these agencies are already registered with the State Department’s Bureau of Population, Refugees and Migration to help resettle refugees in the United States) A more limited number of designated agencies will be announced to work with Central American petitioners by the end of November. With the help of the agency, the parent legally in the United States will complete a State Department form DS-7699. He or she can also petition for the other parent of the child so long as they are currently married to each other. As part of the petition process, the designated agency will help the U.S. parent submit to DNA testing to confirm biological relationship with the minor child.

In the three Central American countries, the UN’s International Organization for Migration will manage the process by contacting each child and inviting them to a pre-screening interview. The published purpose is to prepare the child for a refugee interview with a DHS official, but we must assume that it is also intended to weed out minors who fail to meet the basic requirements.

With DNA establishing a parental relationship, the child proceeds to an interview with a DHS official in their home country. This is the critical test because DHS will establish whether the child has grounds for refugee status based upon “a well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion.” The most credible fear for these children is “membership of a particular social group” such that gang members seek to recruit, prostitute or harm them if they refuse to join, or align under pressure with the opposing illicit gang.

Parole status

Should the child not qualify for refugee status, he or she can apply for parole based on a DHS finding that the “individual is at risk of harm, clears all background vetting, there is no serious derogatory information and someone has committed to financially support the individual while in the United States.”[4]

These conditions are not onerous and are intended to protect children from violence, abuse and neglect. Parole does not give the child permanent immigration status or a path to the same. Nor are parolees eligible for medical and other benefits beyond schooling and the right to work. However, the parolee can remain in the United States for two years and may extend that period thereafter.

For those children with legal counsel, a legitimate fear of sexual harassment, bodily harm from gangs or intra-family feuds can often be established, but for those children without counsel and over anxious in the interview with a U.S. official, the grant of parole status is the more likely outcome. We should therefore expect more children to qualify as parolees – entering on a temporary basis rather than permanent refugees.

Ceiling to the number of refugees

Currently 4,000 refugees may enter the U.S. from Latin America and the Caribbean in the fiscal year 2014 to 2015. Given the 61,705 unaccompanied minors detained by Customs and Border Patrol in FY 2014, the current quota will not be sufficient to meet the needs of those who qualify as refugees. Therefore, we should support lifting the current ceiling to accommodate the anticipated larger number of petitioners for refugee status from three northern Central American nations. There is no limit on the number of parolees that may enter the United States in any one year.

The speed with which both State and DHS reached agreement on processing petitioners for refugee and parole status in their respective countries indicates an admirable capacity to adapt. DHS Secretary, Jeh Johnson’s seven visits to the southwest border this year and his interaction with the children have encouraged him to act judiciously and relatively fast. He reflects American compassion toward these children, and often their mothers, who risk so much to join a parent in the United States. The program recognizes that there is a war in Central America and the respective states are incapable of protecting their young citizens from gangs and organized crime. This program responds to Emma Lazarus’ poem engraved in the bronze plaque at the pedestal of the Statute of Liberty:

Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore.

[1] U.S. Department of State. “Western Hemisphere: In-Country Refugee/Parole Program for Minors in El Salvador, Guatemala and Honduras with Parents lawfully President in the United States.” Last modified November 14, 2014. http://www.state.gov/j/prm/releases/factsheets/2014/234067.htm.
[2] U.S. Customs and Border Protection. “Southwest Border Unaccompanied Alien Children.” Accessed November 20, 2014. http://www.cbp.gov/newsroom/stats/southwest-border-unaccompanied-children.
[3] UNHCR Regional Office for the United States and the Caribbean. “Children on the Run.” Accessed November 20, 2014. http://unhcrwashington.org/children.
[4] U.S. Department of State. “Western Hemisphere: In-Country Refugee/Parole Program for Minors in El Salvador, Guatemala and Honduras with Parents lawfully President in the United States.” Last modified November 14, 2014. http://www.state.gov/j/prm/releases/factsheets/2014/234067.htm. Authors Image Source: © Jorge Lopez / Reuters         
Categories: Blog

Hutchins Roundup: Unemployment Insurance, Emerging Markets, and More

Brookings Institute Blog - Thu, 11/20/2014 - 08:46

Unemployment insurance is more effective than universal basic income
Alice Fabre of Aix Marselle University, Stéphane Pallage of the Université du Québec à Montréal, and Christian Zimmermann of the Federal Reserve Bank of St. Louis conclude that unemployment insurance policies provide a higher level of social welfare than universal basic income systems. Universal basic income systems, which provide all citizens with a minimum allowance, are cheaper to administer but are less effective in targeting those most in need.

Capping deductions would raise revenue and increase tax progressivity
Martin Feldstein of Harvard University argues that imposing a cap which limits individuals’ ability to reduce their tax liability through deductions and exemptions to 2 percent of adjusted gross income would raise revenues by roughly $1.8 trillion over the next ten years and increase the progressivity of the individual income tax while lowering marginal tax rates. Feldstein notes that this type of cap is more politically feasible than eliminating specific deductions.

Emerging market growth expected to remain subdued over next few years
In an analysis of 63 emerging market economies, Evridiki Tsounta of the International Monetary Fund finds that the strong growth experienced from 2000-2012 is not likely to be sustained over the next several years. Tsounta estimates that potential GDP growth for these countries will average 3.5 percent between 2013 and 2017, down from an average of 4.25 percent in 2000-2012.

Chart of the week: State and Federal taxes account for a declining share of gas prices

Speech of the week: Over time, financial reforms provide a significant economic boost
“While we all recognize that future crises can never be ruled out, the steps taken to make banks safer and simpler have certainly reduced the likely frequency and severity of future financial crises. In doing so, they have reduced the exorbitant costs of instability. The Basel Committee assessed in 2010 that the economic cost of the median financial crisis amounted, over time, to 60% of national income. With a 5% probability of a crisis each year, that is equivalent to annual costs of 3% of GDP. For the G20 as a whole that is $2trn. By eroding these costs, financial reform alone can therefore more than deliver the G20 commitment to raise GDP by more than 2%.”
–Mark Carney, Governor, Bank of England

Authors         
Categories: Blog

A Historic Compromise in Tunisia? What Rome Can Teach Carthage

Brookings Institute Blog - Wed, 11/19/2014 - 12:45

Next Sunday’s first round of the Tunisian presidential election is unlikely to produce an outright winner but the country can already lay claim to the most democratic success story in the uncertain post-Arab Spring period.

Earlier this year, the Islamist-led National Constituent Assembly in Tunis produced a pluralist constitution that set the stage for a parliamentary contest on October 26 in which the incumbents lost. That simple fact of political alternation is a historic milestone: Ennahda is not the only Islamist party to lose the confidence of its initial protest-vote electorate, but it is the first to live to tell the tale.

Islamist participation in the democratic process

The birthplace of the Arab Spring offers a tantalizing third way toward Islamist participation in the democratic process: a Goldilocks outcome between Turkish majoritarianism and Egyptian militarism. Tunisia is different: it is smaller, lacks a hegemonic army, and Ennahda doesn’t have anywhere near a majority of votes.

The alluring tableau, however, conceals a fragmented elite and a scattered electorate. Twenty-seven parties declared candidates for president, although a handful have dropped out. Last month, more than 15,000 candidates running on over 1,300 party lists vied for 217 parliamentary seats. Only two-fifths of eligible adults registered to vote and less than two-thirds of them actually voted.

The main pattern to emerge from parliamentary elections is the same that has defined the country for decades: an existential battle between Islamists and anti-Islamists with a majority for neither. The Islamists lost six percentage points (32 percent) but the secularists were not exactly embraced. Taking into account non-registration and abstention, the victorious party Nidaa Tounes’s share of the legislative vote (38 percent) corresponds to roughly one out of five eligible voters.

These results accurately reflect a highly polarized society. Nidaa Tounes is led by presidential frontrunner Beji Caïd Essebsi, an 87-year-old who served under every regime since 1956 independence and who stoked voters’ fear of Ennahda’s “seventh century project” during the campaign. Ennahda’s leadership framed the election as a contest “between supporters of the revolution and supporters of the counter-revolution.” It is the only Muslim-majority country where nearly half of the population claims to never step foot in a mosque.

Do Tunisians favor “authoritarian government”?

For the first time since the 2011 revolution, polling this summer showed a majority of Tunisians favoring “authoritarian government” over an “unstable” democratic government. Also for the first time, Ennahda declined to field a presidential candidate to contain apprehensions about them. While Essebsi mostly enjoys an untainted reputation his party, Nidaa Tounes is a loose coalition including many holdovers from the previous regime.

The last time electoral democracies experienced a comparable juncture was not in 2013 Cairo or Gezi Park, but rather Rome during the tense 1970s. In 1976, the Italian Communist Party received one-third of the votes, making it the largest Communist electoral bloc west of the Iron Curtain. Frequent small-scale terrorist attacks took place against the backdrop of global tensions between NATO and Warsaw Pact members.

It is hard to remember a time when the term “socialism” provoked as much angst as “Sharia” does today, but Tunisia stands at a crossroads analogous to the old Cold War alternatives of Washington and Moscow, with Qatar and other Gulf states filling the shoes of the old “evil empire.”

Recognizing that Italy was too divided to govern alone, party leader Enrico Berlinguer proposed a historic compromise (compromesso storico) with the archenemy Christian Democrats to bridge a seemingly impassible cultural-political gap.

Ennahda party faces doubts

Today’s Ennahda party faces the same doubts as Communist leaders in postwar Europe: are they truly pluralist democrats? Do they accept power sharing? The executive director of Nidaa Tounes, Mondher Belhadj Ali, said in an interview in Tunis earlier this year that Ennahda must undergo the equivalent process of the various leftist parties in Europe during the Cold War. The party needs to renounce its “jihadist logic,” Belhadj said, in the same way that the German left distanced itself from international Marxist-Leninist creed at Bad Godesberg in 1959.[1]

To be considered trustworthy despite its association with a revolutionary ideology, the Italian Communist Party (Partito Comunista Italiano, or PCI) underwent key shifts. Its leadership broke with the international Comintern by supporting Italy’s NATO membership. They also refused Moscow’s order of “intransigence” through silent partnership with a Christian Democrat-led government, giving way to the “via Italiana” – an Italian path – to socialism.

Why did the PCI pursue this path at a moment of rising strength, when their share of the vote was peaking at 32 percent? Italian Communists had no doubt noticed that NATO countries were willing to forego democratic outcomes in Chile three years earlier in the name of political stability and anti-communism.

“Alternative to the Islamic State”

It is also apparent that Ennahda’s leadership has correctly interpreted the West’s silence after the arrest of Egypt’s first democratically elected president last year. The party’s agreement to omit the word “Sharia” from the constitution, its decision to ban the extremist group Ansar Echaria and its voluntary departure from political posts in 2013 have been taken as early signs of a willingness to compromise. There is no exact Islamist equivalent to Moscow and the Comintern, but Ennahda has offered itself up as “the alternative to the Islamic State.” Ennahda has also adopted an official party line not to govern alone but only in alliance with other parties. Party leader Rached Ghannouchi said he hopes to avoid “the repetition of the Egyptian bilateral polarizing model.”

Political pressure already forced Ennahda and its partners to wage not merely ideological but also actual military war on violent Islamist extremism. The martyrs of the Tunisian Revolution now include not only the two secular politicians who were assassinated in the first half of 2013 but also the 39 Tunisian soldiers who have been killed since then – including five in an attack earlier this month.

The interim government has not hesitated to combat religious enemies of the state. President Moncef Marzouki, a human rights activist, looked ashen in an interview in his office this summer: “I deeply regret it: it means killing and arresting people but I have to defend this state” – at times leading to the deaths of a dozen combatants per month, including six on election weekend.[2]

In the years since the revolution, through a mixture of coercion and conviction, the religious affairs ministry whittled down the number of prayer spaces under the control of Salafi extremists from over 1000 in 2011 to under 100 today. This summer, the government fired an imam who refused to say prayers for a soldier who died in a raid on an Islamist cell.”[3]

Like Berlinguer before him, Ghannouchi has made timely visits to meet with American officials and offer democratic reassurances – but to far greater effect than the Italian Communists ever managed. Washington’s reception of the PCI is captured by the chiaroscuro headshot of Berlinguer on a June 1976 cover of Time declaiming “The Red Threat.” In 2012, the magazine named Ghannouchi one of the “World’s Most Influential People,” someone who offers “a vision of a moderate, modern and inclusive political movement.”

Critics will point out that shortly after the compromesso storico, the Communist Party’s electoral base bottomed out. Left-wing terrorism did taper off but not before the Red Brigades kidnapped and executed the Communists’ main Christian Democratic interlocutor, former Prime Minister Aldo Moro, in 1978.

Compromise may lead to national unity

With counterterrorism support to resist such extremist violence on the fringes and more enthusiastic backing from Western capitals, however, a Tunisian historic compromise may yet deliver the national unity that the country needs to advance to self-confident partisan rule – and mutual faith in political alternation. The recent announcement of joint U.S.-Tunisian counter-terrorism exercises and a gift of $14 million worth of equipment and supplies are small in scale but their timing conveys a broader reassurance.

The lack of a clear political mandate may turn out to be the hidden advantage of this inaugural election season in Tunisia. The country’s political parties can now use the first full presidency and parliamentary session of a democratic Tunisia to blaze a third way between military rule and majoritarian Islamist democracy.

Just as Italian communism was a different animal than the Soviet Communist Party, Tunisian exceptionalism is a real thing. The accelerated modernization period under Independence leader Habib Bourguiba after decolonization left behind the lowest illiteracy rate and lowest birthrate in the neighborhood. Its relatively peaceful democratic revolution has now passed several institutional milestones. As President Moncef Marzouki put it, “if the experiment in Islamic democracy doesn’t work here then it’s unlikely to work anywhere.”[4]

The Italian Communist Party voted to dissolve itself almost 24 years ago, not long after the Berlin Wall fell and sealed its obsolescence. An equivalent geopolitical shift in Sunni Islam – away from the hegemony of ideologically rigid Gulf States – is as unimaginable now as was the thaw of November 1989. But a great compromise between the region’s modern nemeses – secularist and Islamist – could well dislodge the first brick.

[1] Jonathan Laurence interview with Mondher Belhadj Ali, May 2014, Tunis, Tunisia.
[2] Jonathan Laurence interview with Tunisian President Moncef Marzouki, May 2014, Carthage, Tunisia.
[3] Jonathan Laurence Interview with Tunisian Minister of Religious Affairs Mounir Tlili, May 2014, Tunis, Tunisia.
[4] Ibid. Authors Image Source: © Anis Mili / Reuters         
Categories: Blog

How Physician-Led ACOs Can Overcome Four Major Implementation Challenges

Brookings Institute Blog - Wed, 11/19/2014 - 09:56

We are pleased to announce the release of a new resource: Adopting Accountable Care: An Implementation Guide for Physician Practices. The toolkit, which provides resources and advice for physician-led ACOs in all stages of development, implementation and practice, is the product of a year-long effort on behalf of an ACO Learning Network physician-led workgroup.

The Critical Role of Physician Practices in the Accountable Care Movement
Physician-led organizations now account for more than half of the ACOs in the Medicare Shared Savings Program. Early results suggest that these physician-led ACOs have been able to improve the quality of care delivered to patients and, in many cases, reduce total health care spending. In fact, we believe that physician-led ACOs are uniquely positioned to help transform accountable care across the country. However, more work is needed to continue this momentum. The purpose of this toolkit is to explore the four major barriers to success and help these organizations develop strategies to overcome them effectively.

Physician-led ACOs are an integral part of accountable care precisely because they are unique in comparison to their hospital-led or integrated health system counterparts. Physician-led ACOs are commonly comprised of one or more independent primary care physician group or practice association and on average provide care to fewer patients than hospital-led ACOs. These ACOs are primary care-dominant, but are also increasingly engaging with specialists and others across the care continuum. The centrality of primary care within their organizations may give physician-led ACOs a comparative advantage at improving outcomes, reducing unnecessary hospitalizations and ED visits, and lowering costs—all essential elements of accountable care. Their smaller size and leaner operational structure can allow them to be more nimble and make quicker decisions about launching quality improvement initiatives or adopting new clinical processes and technologies.

Addressing Key Challenges for Physician-Led ACOs
However, physician-led ACOs also face significant challenges. Most lack the infrastructure and support of their larger counterparts, which may inhibit their ability to hire necessary staff and providers, purchase new health IT systems, secure technical assistance or develop patient outreach strategies. Oftentimes, smaller ACOs are unable to recruit an adequate support staff to manage the operational demands of ACO transformation, or a clinical staff that is experienced in population-based care management. Nonetheless, a growing body of evidence suggests that physician-led ACOs are often able to achieve better health outcomes in low-cost community settings by leveraging the strong relationships that exist between primary care providers and their patients.

In recognition of the unique position of physician-led ACOs in the evolving accountable care landscape, the ACO Learning Network convened an Innovation Exchange to explore the greatest barriers to success. This working group convened bimonthly calls with approximately 20 physician-led ACOs and external experts to share best practices and discuss next steps for accountable care. From these interactions with workgroup members and other thought leaders we identified four topics to cover in this toolkit: (1) identifying and managing high-risk patients (2) developing high-value referral networks (3) using event notifications and (4) engaging patients. The toolkit includes chapters on each of these topics, as well as appendices and other resources for physician-led ACOs.

Chapter 1: Identifying and Managing High-Risk Patients: This chapter includes a discussion of analyzing claims and clinical data, use of risk-stratification algorithms and selecting which patients would most benefit from care management approaches. We also discuss team-based care strategies, such as the role of care managers, appropriate training, and the role of health IT for population health management.

Chapter 2: Developing High-Value Referral Networks: This chapter discusses how ACOs can collaborate with specialists and other providers who are not formal members of the ACO. We provide an overview of developing care coordination agreements with specialists and outline expectations for communication and disease co-management. We also highlight approaches for effectively engaging with post-acute care providers, and identify ways to identify specialists who are more likely to deliver high-value care.

Chapter 3: Using Event Notifications: This chapter emphasizes the role of data as a critical tool for managing patient populations. We discuss ways that ACOs can set up automated notification systems to receive real-time alerts when patients are admitted and discharged from the hospital or transferred to a post-acute or long-term care facility. In addition, we provide an overview of care coordination interventions that can be set up to respond upon receipt of such notifications.

Chapter 4: Engaging Patients: Our final chapter addresses key competencies for ACOs on how best to engage patients and their families in accountable care. This chapter covers strategies for informing and engaging patients in accountable care, as well as partnering with patients for improved medical decision making and management of chronic disease. Additionally, the chapter discusses ways to strengthen the connections between patients and ACOs, as well as opportunities to involve patients in ACO governance and decision-making.

The ACO Learning Network continues to work with ACOs and other stakeholders to provide practical solutions that encourage the widespread adoption of accountable care strategies. We look forward to engaging in dialogue around these issues, sharing provider experiences and identifying actionable next steps to ensure the success of physician-led accountable care.

Our future efforts will focus on two areas: (1) developing sustainable financial models that account for organization needs and capabilities; and (2) developing strategies for clinical transformation that use advanced primary care and team-based approaches. For more information, click here.

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Categories: Blog

Understanding the Ebola Outbreak and How to Respond in the Future

Brookings Institute Blog - Wed, 11/19/2014 - 09:00

On November 12, Brookings held an event on the Ebola outbreak of 2014 and the international response in its various aspects, with an eye towards understanding the current crisis and fashioning future policy.

Brookings President Strobe Talbott led a conversation with U.S. Agency for International Development Administrator Rajiv Shah and Assistant to the Administrator for Africa Eric Postel. The conversation was followed by a panel to discuss the effects of the Ebola crisis, moderated by me. Panelists included Oscar Bloh, director of the Liberian office of Search for Common Ground; Amadou Sy, a senior fellow in the Africa Growth Initiative in the Global Economy and Development Program at Brookings and a former IMF official; and Elizabeth Ferris, senior fellow in the Foreign Policy Program and director of the Brookings-LSE Project on Internal Displacement. In addition to the speakers, there were also a number of strong interventions from the audience, including from former Liberian officials and other Africans.

Shah and Postel made a number of very important points:

  • Infection rates are declining in Liberia, but that could be a temporary phenomenon and may not be true even now in rural areas of the country (or in other afflicted parts of West Africa, such as the forested parts of Guinea).
  • Ebola has decimated the health care systems of Liberia, Sierra Leone and Guinea, and rebuilding those sectors will be of paramount importance.
  • Liberians, and others, have made major progress in changing burial practices, reducing human contact and improving basic hygiene that have helped lower the infection rates substantially from the 2:1 ratios of earlier this spring (meaning, on average, two new cases for every infected person), to something closer to a leveling off of the epidemic.
  • However, in a best-case scenario, we won’t be able to expect a major decline in the severity of the crisis until at least the spring of 2015.
  • And even then, just as happened this past spring, there could be a resurgence if the virus mutates or if it reaches new populations that do not get the kind of public health support they need at that time.
  • Watching the data on trends with the epidemic provides an enormous help in how to respond, and indeed, we should be able to do even better in that regard given the prevalence of cell phones, even in poorer countries in Africa
  • The president’s request for more Ebola funding to protect America is extremely important because we must avoid any false sense of complacency just because the epidemic is perhaps leveling off in Liberia and not presently expanding its reach into North America. That response includes preparations here at home, but also further work in West Africa, since this kind of problem can only truly be addressed by going to the source, and since there remains much work to do as indicated above.
  • The economic effects of this crisis have been severe as well, bringing growth rates down from levels approaching 10 percent in these new success stories of West Africa to very low or no growth at all.
  • As Talbott also noted, Americans continue to think that the United States spends far more than it does on international development and relief, and when told of what their dollars actually accomplish on the ground, Shah pointed out that they often express a willingness to do more, not less

Bloh echoed some of Shah’s observations and emphasized the degree to which Liberians have come together and changed the behavior to address the Ebola crisis. But he also underscored the importance of citizens, citizens’ groups and the international community keeping pressure on the Liberian government to restore and improve health care systems, and to make sure that future deals designed to lure investors back to Liberia are designed with the interests of the Liberian people in mind. He is concerned that often this has not been the case in the past.

Sy built on the points Shah and Postel made about the economic travesty that has resulted from Ebola. His greatest near-term concern was in helping the affected governments cover their fiscal gaps brought about by the general slowdown in economic activity and the termination or freezing of various projects by external investors. He thought that it would be difficult to reverse the trends in external investment in the nearby future, but saw an important, and indeed, urgent role for the international community to help Liberia and other regional governments with their fiscal gaps so that schools can soon be reopened, health care services restored and infrastructure projects resumed, among other things.

Ferris placed the West Africa Ebola crisis in a broader international context. She noted that the world’s relief and response capacity was already overstretched by long and intense crises from Syria to Sudan to the Central African Republic and beyond, and that some very fresh and even painful thinking might be needed to think about how to respond. Among other ideas, she suggested that there may have to be sunset terms on new humanitarian relief missions—not because the world has the power necessarily to declare an end to any disaster or crisis after a specific length of time, but rather because the humanitarian community cannot realistically manage acute crises for years on end, and may need to hand off certain problems to the development community after a certain number of years simply to preserve its capacity to handle new problems as they arise.

I concluded by noting how much Africans have already done to improve the governance of their own countries and their response capacity for problems like Ebola—and how encouraged those who focus on Africa should be, when one compares the continent’s current trajectory (even if clearly still mixed, and troubled in many ways) with earlier decades in the post-independence era.

Authors Image Source: © Thierry Gouegnon / Reuters         
Categories: Blog

Growth: An Essential Part of a Cure for Unemployment

IMF blog - Wed, 11/19/2014 - 08:17

By Davide Furceri and Prakash Loungani

(version in EspañolFrançais中文Русский,  عربي,  日本語)

Unemployment is a global problem. If the unemployed formed their own country, it would be the fifth largest in the world. Of the nearly 200 million people around the world looking for work, half are in emerging markets and about a quarter in advanced economies, reflecting the growing weight of emerging markets in the global labor force (Figure 1).

What can be done to lower unemployment? For advanced economies, economists have long advocated a simple cure: more growth. This is because the link between output growth and job creation is fairly strong in most advanced economies. For emerging markets, however, there is a widespread perception that unemployment reflects deep-seated structural problems that cannot be resolved simply through greater growth. But what is the evidence on how well growth works as a tonic for job creation in emerging markets and developing economies?

In new research (conducted jointly with Laurence Ball and Daniel Leigh), we provide an answer for a large group of about 80 countries, including the G20 countries. Our broad conclusion is that the relationship between growth and jobs holds well in a number of emerging economies. In frontier and other developing economies the relationship is much weaker.

Tonic for job creation in many countries

Our evidence is summarized in Figure 2, which shows the growth-jobs nexus using two alternate measure of the state of labor markets, the unemployment rate and the growth rate of employment. The left panel of Figure 2 shows that, among advanced economies on average, unemployment falls by a third of a percentage point for each additional percentage point of real GDP growth. The relationship between jobs and growth is almost as strong among emerging market economies, on average: an additional percentage point of output growth lowers the unemployment rate by ¼ of a percentage point.

Likewise, the right hand panel of Figure 2 shows that the impact of output growth on employment growth is stronger in the advanced and emerging economies than in the other groups. In the emerging markets for instance, on average a percentage point of output growth raises employment growth by 0.2 percentage points.

At the recent G20 Leaders Summit, the member countries discussed their plans to deliver extra growth significantly over the coming years. Our research can provide estimates of the extent to which this extra growth can deliver jobs in each country. As shown in Figure 3, for the majority of the G20 members the historical link between growth and jobs has been strong, ranging from 0.6 in the United States to about 0.2 in Russia.

Boosting growth 

The evidence that extra growth will bring back jobs in many countries leads to the obvious question: what will deliver the extra growth?

As the IMF’s latest World Economic Outlook notes, this requires “continued support to domestic demand and the adoption of policies and reforms that can boost supply.” Without supportive demand policies, supply measures could have little impact in the short run. If companies do not see improved sales prospects, they will not increase capacity; hence, it is essential to ensure that the demand is there to sustain supply. But without supply measures, output gains based solely on a stimulus to demand will prove temporary.

What specific policies does this entail? Broadly speaking, in advanced economies, monetary policy should continue to support the recovery in demand. Fiscal adjustment, while attuned in pace and composition to the specific needs of countries, must be as growth-friendly as possible. Emerging markets are slowing down from pre-crisis growth rates. They need to primarily address underlying structural problems, which are quite varied across countries, from removing bottlenecks in the power sector to reforms on labor and product markets.

In many countries, there is a strong case for increasing public infrastructure investment, which would provide a much-needed boost to demand in the short term and would also help supply (i.e. potential output) over the longer term.

Bottom-line

Our research suggests that growth can help job creation, though the extent to which it can do so varies across emerging markets, just as it does for advanced economies. Thus, while growth is not a panacea, it is an essential part of the cure for unemployment.


Categories: Blog

Mở rộng chương trình vệ sinh môi trường tại Việt Nam

Một người dân ở Hòa Bình vui mừng khi xây được nhà vệ sinh mới. Ảnh: Chương trình Nước và vệ sinh mội trường của Ngân hàng Thế giới.


Vệ sinh môi trường mang lại nhiều lợi ích như giảm chi phí chữa bệnh, nâng cao chất lượng cuộc sống, tăng cường an toàn cho phụ nữ và các em gái, đó là chưa kể đến những ích lợi kinh tế tuyệt vời mà vệ sinh mang lại. Nhưng nếu muốn tận dụng được hết những lợi ích đó thì cần phải có các cách tiếp cận mới áp dụng trên qui mô rộng và thúc đẩy tiếp cận bình đẳng. Như Eddy Perez, Chuyên gia trưởng về vệ sinh môi trường, Chương trình Nước sạch và Vệ sinh của Ngân hàng Thế giới, đã chia sẻ trong blog gần đây gây về quá trình loại bỏ bất bình đẳng và giúp mọi người đều có thể tiếp cận dịch vụ đòi hỏi một sự chuyển đổi và từ bỏ cách làm theo lối mòn cũ. (Đọc bài viết bằng Tiếng Anh: Tại sao và bằng cách nào các nước có thể phấn đấu hoàn thành mục tiêu vệ sinh nông thôn cho toàn dân vào năm 2030) và Khắc phục cung ứng dịch vụ vệ sinh cho người nghèo tiến tới hoàn thành mục tiêu kép).

Categories: Asia, Blog

Taking Sanitation to Scale in Vietnam

A resident in Hoa Binh Province is happy with his newly built toilet. Photo: World Bank’s Water and Sanitation Program



Sanitation brings numerous benefits such as reducing the burden of disease, improving quality of life, promoting the safety of women and girls, not to mention the excellent economic investment that sanitation represents. Yet, to realize these benefits, new approaches are needed that work at scale and promote equality of access. As Eddy Perez, Lead Sanitation Specialist at the World Bank’s Water and Sanitation Program, recently highlighted in his excellent blog posts, eliminating inequalities and achieving universal access requires transformational change and a departure from ‘business as usual’. (Read ‘How and Why Countries are Changing to Reach Universal Access in Rural Sanitation by 2030’ and ‘Fixing Sanitation Service Delivery for the Poor to Meet the Twin Goals’).

Categories: Asia, Blog

Philippines: Owning a Toilet is a Sign of Progress

In the quiet village of Bantayanon in Negros Occidental, Ligaya Almunacid showed off her new toilet.  “This is my dream toilet,” she told us. Hers is not the typical structure made of palm-thatched roof and walls commonly seen in the area, but rather made of concrete hollow blocks with galvanized iron roofing. 
 
The 48-year old lady was all smiles throughout our conversation, telling us what she liked about the toilet. “I wanted my toilet to be durable especially since our house sits in the middle of a flood-prone area.” Ligaya recalled how difficult it was in the past when her family had to share their neighbor’s toilet, or take the risk of getting bitten by snakes in the field just to relieve themselves.  On closer examination, it would seem that she made the right decision in building a hygienic and resilient structure in securing her family’s health and welfare.

Categories: Asia, Blog

Can the G-20 Plan Really Boost Global Growth?

Brookings Institute Blog - Mon, 11/17/2014 - 14:35

As the G-20 Summit concluded in Brisbane, Australia on November 16th, it set a target to achieve an incremental jump in global GDP growth of 2 percent by 2018 and made commitments to creating a Global Infrastructure Investment Initiative (GIII) to address an estimated $5 trillion per year in infrastructure needs around the world. 

It is a valid policy idea to expose the gap between current and potential rates of economic growth to the public. That the Australians put the spotlight on this growth gap was the central achievement of their G-20 Summit in Brisbane. It is a contribution to the global effort to energize the global economy and generate both greater and smarter growth. The question is, will it work? 

The gap between potential and actual growth has more to do with the patterns and sources of growth than the rates of growth. It is certainly necessary to continue to use monetary and fiscal policy to stimulate aggregate, demand-driven growth, but it will not be not sufficient.  

The people-problem in global growth has to do with structural obstacles: market dynamics of globalization tend to increase income inequality; technologies can be labor displacing rather than labor absorbing; and the knowledge-economy requires technical skills that are more sophisticated than investment-driven industrialization.  

As a result, the focus is now on structural policies and reforms, an issue on which the OECD has been an international leader. OECD Secretary General Angel Gurria jointly released an OECD report with Australia Minister of Finance Joseph Hockey in February of this year. At the G-20 Summit in Brisbane, Gurria said that it was possible that the global growth effort by the G-20, which the OECD and IMF are monitoring, could “overshoot” the 2 percent target.  

Discussing structural reforms tends to “get in the weeds” quickly, since the details vary by each country’s circumstances—as made clear by Brisbane’s G-20 Action Plan. Going from the Brisbane G-20 Summit to regional, ministerial, and national agendas and actions becomes the next phase in this effort to boost global growth by shifting the patterns and sources of growth. 

A key component in closing the growth gap will be the aforementioned Global Infrastructure Investment Initiative. The GIII is the culmination of a long discussion involving the G-20, the World Bank, the regional development banks, the private sector and others on how to accelerate much-needed investment in infrastructure—globally, and on a scale that can make a difference, especially in an era of fiscal policy constraints.  

The relationship between private and public investment in global infrastructure and other global growth projects is tricky. Just because many governments face reduced flexibility with fiscal policy at the moment does not mean that the responsibility for infrastructure investment can or will or should be picked up by private investors, much less private financial institutions and markets. The public and private sector each have a vital role. One will not work without the other.

Yet rules and norms do have to be worked out to incentivize private investment in infrastructure. This work is well underway and embodied in the Brisbane GIII. Incremental investment in global infrastructure adds up over time, and prudent direction of financing toward the most impactful projects can be a big boost to global growth and directly have an impact on peoples' lives. This is the kind of people-oriented action G-20 leaders were looking for in Brisbane.

Setting incremental “reach goals” is not just a word game or publicity play. It has proven to be a means of mobilizing resources, policies and efforts by diverse actors to stimulate higher-order results than might otherwise have happened. Just engaging in projecting likely growth outcomes can set the bar too low. In fact, all global goal setting is meant to motivate and mobilize momentum for just such incremental efforts. 

Taken together, a combination of structural reforms, infrastructure investment and continued growth-oriented monetary and fiscal policies can make a real difference in boosting global growth. This combination makes the Brisbane target of an additional 2 percent of global GDP growth by 2018 a feasible, even if ambitious, goal.

Authors         
Categories: Blog

In Memoriam: Bill Frenzel

Brookings Institute Blog - Mon, 11/17/2014 - 13:42

Bill Frenzel, Brookings guest scholar for the past 23 years, died on Monday, November 17, 2014 at the age of 86 at his home in McLean, Virginia. He also served as a Member of Congress for 20 years, representing Minnesota’s 3rd District.

During his career, Bill was the Ranking Minority Member on the House Budget Committee and was the principal Republican economic spokesperson in the House. He was a member of the House Ways and Means Committee and its Trade Subcommittee, and was a congressional representative to the General Agreement on Tariffs and Trade (GATT) in Geneva for 15 years.

He was appointed to serve by presidents on both sides of the aisle: In 1993, he was special advisor to President Bill Clinton for NAFTA and was instrumental in getting the agreement passed.  In 2001, President George W. Bush appointed him to the Social Security Commission, and in 2002, to the Advisory Committee on Trade Policy and Negotiations (ACTPN), which he chaired. In January, 2005, he was appointed to President Bush’s Tax Reform Commission. And this year, President Obama re-appointed him to the Advisory Committee for Trade Policy and Negotiations (ACTPN).

For his efforts on NAFTA, on the 20th anniversary of the passage of the agreement this year, Bill was awarded the Champion of Free Trade Award from the Economic Club of Minnesota in January 2014. In October 2014, he was awarded the Order of the Aztec Eagle, the highest award Mexico confers on foreigners by Mexican Ambassador Eduardo Medina Mora at the Mexican Cultural Center in Washington, D.C. And for his overall efforts to advance trade and the US-Japan relationship, in 2000, he was awarded the Order of the Rising Sun, Gold and Silver Star, by the Emperor of Japan.

Bill served in many capacities while at Brookings – on the Committee for a Responsible Federal Budget, the Bretton Woods Committee, the Eurasia Foundation, the Ripon Society, the Peterson-Pew Commission on Budget Reform, and many more. He also served on the Congressional Ethics Committee and was a board member of Sit Mutual Funds and Northstar Education Finance.

Born on July 31, 1928 in St. Paul, Minnesota, Bill was raised there and went on to receive his B.A. and M.B.A. from Dartmouth College.  In 2002, he received an Honorary Doctor of Laws Degree from Hamline University.  He also served as a Naval Officer during the Korean War. He was president of the Minneapolis Terminal Warehouse Co., and other corporations, was a member of the Executive Board of the American Warehousemen's Association, and served eight years in the Minnesota Legislature.

Bill is survived by his wife of 63 years, Ruthy; his three daughters, Debby, Pam and Mitty; and two perfect grandchildren, Will and Polly Lindon.

Image Source: Sam Kittner         
Categories: Blog

Building a Camaraderie of Central Bankers: How Monetary Policymakers in the Caucasus and Central Asia Can Learn From Each Other

IMF blog - Mon, 11/17/2014 - 08:40

By Min Zhu

(Versions in 中文Русский)

The world’s central bankers are certainly in the news these days. Not a week goes by without the Fed, the European Central Bank or the Bank of Japan taking big and often unprecedented actions to fight deflation, preserve financial stability, or address mediocre growth. We tend to forget, however, that these are not the only central banks that are struggling to adapt their policies to changing circumstances in our connected world.

Take the Caucasus and Central Asia — Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. Central banking in these former Soviet republics rarely makes international headlines. But figuring out how best to design and run monetary policy is no less a challenge than in the United States or the euro zone.

New and old challenges

To be sure, over the last two decades, central banks in the region have made important headway in strengthening their monetary and exchange rate policy frameworks: they have been given greater independence (all be it to varying degrees); they have improved their technical expertise; and they have become more transparent and improved their statistics.

Results have been impressive, with price rises dropping from hyperinflation in the 90s to now single digits in most countries.

Of course, despite this progress, certain structural problems persist. Inflation is still relatively high and volatile, dollarization is pervasive, financial systems are weak, and several countries have low foreign exchange reserves.

The recent sharp slowdown in Russia, a key source of trade, remittances and investment adds fresh challenges, as does the related weakness of the Russian ruble because it creates tensions in these countries’ monetary frameworks, which are often anchored in the U.S. dollar. On top of this, the region’s energy exporters are adapting to the recent drop of oil and gas prices, a key source of foreign currency.

A high-level workshop of central bankers from the region and international experts in Zurich two weeks ago organized jointly by Swiss officials and the International Monetary Fund could not have been more timely.

We discussed ways to make monetary frameworks in the region more resilient to shocks and better capable of supporting sustainable growth.

Focus on price stability

The way forward, we agreed, is to move towards a clear and consistent monetary framework. In practice, this means more explicitly focusing on either the exchange rate or price stability.

Some countries, such as Armenia and Georgia, have already made good progress on explicit inflation targeting. Others are still in the early stages of developing a consistent strategy and setting up the necessary institutions. The successes and failures of countries that have already made the transition are invaluable. The central bank governors from the region were particularly pleased to compare notes with colleagues from Croatia, the Czech Republic, Hungary, Israel, Russia and Serbia.

I’d like to highlight three priorities for central banks that emerged from our  discussion:

  • First, develop a clear strategy of defining objectives (such as price stability), choosing targets (such as the inflation forecast or market interest rates), and developing instruments (such as open market operations)
  • Second, build the analytic capacity to model and forecast the economy. Poor data notwithstanding, such models introduce rigor to discussions among policymakers
  • Finally, develop a communication policy to clearly explain monetary policy and anchor economic expectations, for example on inflation. This may require new means of proactive communication that go beyond just a website and a press release about the latest monetary policy decision.

All this is of course predicated on developing the right supporting institutions, from central bank independence to a reasonably deep financial market, to fiscal authorities that are not working in the opposite direction. As many practitioners in Zurich pointed out, a monetary regime can only work if it enjoys the full support of the government.

A new peer-to-peer network     

This is a tall agenda, and one that will require determination and hard technical work over many years. How to go about it? Thomas Jordan, President of the Swiss National Bank, said:

“You can’t buy reputation and expertise, but you can acquire it through networking.”

In other words, the way forward is to tap the knowledge and experience among colleagues in the camaraderie of central bankers.

In Zurich, we took steps to put in place such a peer-to-peer network of central banks from the region. Staff at all levels will be able to communicate directly with each other through an online discussion forum and regular meetings. For this, we will draw on the experience of our colleagues from the Swiss development agency SECO, who have established such networks successfully in other areas, notably budgeting and treasury operations.

The IMF will do its part, by moderating the discussions and providing analysis and technical advice. I have also asked our teams of economists and financial sector experts to prepare in-depth background papers on monetary issues as part of our regular consultations. Hopefully, in one or two years, we will be able to take stock of progress.

We can’t forget that this isn’t just a technical exercise. At a conference in Bishkek last year, we started a dialogue on a reform agenda to move the countries of Central Asia and the Caucasus to emerging market status. Building a credible monetary framework is a key step forward and an area where the region can deepen its engagement.  We at the IMF stand ready to support this process.


Categories: Blog
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