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Monetary Policy Peer-To-Peer Workshop And Governors’ Forum

articles & speeches

Caucasus and Central Asia (CCA)

One can hope that in the CCA economies the soft budget constraint is no longer an issue for private companies and state-owned ones. However, as a rule, one economic agent can often still enjoy soft budget constraint – the finance ministry.

First of all, I would like to thank the organizers for this kind invitation and opportunity to express my views on the issue of the monetary and exchange rate policy frameworks and strategies in the Caucasus and Central Asian (CCA) countries.

As this area is pretty much Fund’s “bread and butter”, I will not try to present a complete overview, a comprehensive guide with the best practices or new econometric evidence on what works best, for a lot of reasons. First, I do not believe that there is a one size fits all frameworks. We are discussing eight quite different economies.

I even do not believe that for the fast-transforming countries like yours one framework might be optimal in the long run. Second, my comparative advantage is not in econometric studies, but in the hands-on experience I acquired both as the Governor of the Croatian central bank and while working at various central banks mostly as an IMF consultant. I have been advisor to governors or on missions to countries with currency boards, countries moving to inflation targeting, countries that are classified as money targeters, managed floaters, you name it.

But my experience in the CCA countries is limited. I have been on short missions to two of the eight countries we are discussing today (Armenia and Georgia), but I know relatively little about them so I cannot offer any specific advice. In addition, very much in line with the IMF Charter, I think that the choice of the monetary and exchange rate frameworks is for you to decide. Finally, in an aim to be complementary to the IMF presentation, I have omitted general and academic discussions on the choice of the exchange rate policy, such as the famous impossible trinity, etc. I will try to get your attention by focusing on my own experience and make you think about your own country and choices you have made and will have to make in the future.

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