Davide Oliva/Flickr*

Massive capital flight from the weaker Eurozone economies, not envisaged before the creation of the Eurozone, are putting further pressure on the union

One of the main problems underlying the current crisis in the Eurozone is that the conditions set out in the Maastricht Treaty which lay the economic foundation of the zone are not congruent with the criteria needed to form an optimum currency area.  The criteria under the Maastricht Treaty namely are (i) a rate of inflation no more than 1.5 percentage points higher than the average of three EU members with the lowest inflation rates (ii) a ratio of the annual government deficit to GDP not to exceed 3% at the end of the preceding fiscal year or at least required to reach a level close to 3% with exceptional and temporary excesses granted for exceptional cases (iii) a ratio of gross government debt to GDP not to exceed 60% at the end of the preceding fiscal year (iv) that the member should have joined the exchange rate mechanism under the European Monetary System (EMS) for two consecutive years and should not have devalued its currency during the period and (v) that the long-term interest rate must not be more than 2 percentage points higher than in the three lowest inflation member states.

As Robert Mundell, the famous economist, spelt out, the conditions for an optimum currency area to be viable are that (i) the group of countries should not be hit by shocks that are too asymmetric in that one country should not be substantially worse off while others are booming (ii) there is a high degree of labor and/or wage flexibility within the group of countries and (iii) there is coordinated fiscal policy ensuring that capital is transferred from countries that are doing well to countries that are doing poorly.  Members of the Eurozone do not meet most of these criteria.

First, shocks to the Eurozone are asymmetric in that the weaker countries in the periphery such as Greece, Ireland, Portugal, and Spain are hit by slow growth, low labor productivity, and lack of competitiveness whereas the  German, and to a lesser extent, the French economies have relatively much higher labor productivity and are much more competitive.  While this is the common explanation that has been repeated ad neusum in the popular media, the fact is that neither Mundell nor other economists since his seminal work was published saw that there is another shock to the system quite apart from the ones they pointed out.

Illicit financial flows—or illegal capital flight that are unrecorded and triggered by endemic corruption, can be compounded by legal capital flight—the sort of private capital that exits the country due mainly to a loss of confidence in economic conditions or policies. Research at Global Financial Integrity shows that in the years leading up to the financial crisis, there was massive capital flight from Portugal, Ireland, Greece, and Spain.  The flight of capital involved both licit and illicit funds. This hemorrhaging of capital occurred even as Germany and France continued to attract large foreign capital inflows.  But the loss of capital from the weaker members put an upward pressure on long-term interest rates in the Eurozone, higher than the rates which would have prevailed in the absence of such outflows. Moreover, illicit outflows also had an adverse impact on government revenues in the weaker members leading to ever wider fiscal deficits in those countries.  The Mundellian paradigm for an optimum currency area did not foresee the potential instability of a union with the weaker members losing massive capital through legal and illegal capital flight even as stronger members attract large capital inflows.

Second, quite apart from asymmetric shocks, practical rather than legal restrictions on labor mobility within Eurozone countries created tensions and reduced the cohesiveness of the monetary union. So while on paper the Eurozone members did away with the work and visa restrictions that hampered labor mobility, in reality labor has never been very mobile between them—for example, it is extremely difficult for Greek workers to join the labor market in Germany or France due to language and skill-set barriers.  Third, wages are quite sticky due to labor unions and laws so that lagging competitiveness in the weaker economies cannot be easily corrected.

Finally, there is no coordination in fiscal policy among member states of the Eurozone.

A strict control on monetary policy over the Eurozone members is not sufficient to ensure stability of the union. Because monetary control can be circumvented by foreign borrowing (i.e., foreign loans can substitute for an expansion of domestic currency), it would be necessary to complement the monetary union with centralized fiscal policy to control foreign borrowing.

Is the turmoil in Greece a harbinger of the Euro’s demise?  It looks as if in spite of massive bailouts from the IMF and the EU, Greece would not be able to stave off a debt restructuring (a euphemism for debt default) for much longer.  Going by the debt dynamics with Greek debt to GDP ratio at 150 percent and the ever higher rates that investors in Greek bonds are demanding, I expect a wholesale restructuring of Greek debt within one, at most two years. It’s a very somber scenario because contagion effects, in a financially globalized world, would mean that banks in major European countries which hold toxic Greek assets, can fail. There is a distinct possibility that the majority of Greeks may decide that they cannot live with the severe austerity being imposed on them by the IMF and the EU and would rather drop out of the Eurozone in favor of their own currency.  In that case, other countries like Ireland, Spain, and Portugal which are also battling huge debts and years of slow growth, high unemployment, and painful fiscal retrenchment may follow Greece to free themselves of the tethers of a monetary union. But the fact is countries that decide to opt out of the Eurozone for their own currency would not necessarily avert years of austerity—an expected (and immediate) fall in the value of their currencies will also spell painful cuts in wages until domestic goods are able to compete in world markets and resulting trade and budgets deficits are effectively narrowed.

* Image License: Some rights reserved by Davide “Dodo” Oliva

Alexanda Hulme / Flickr*

Recent news from Russia confirms that corruption is a serious issue that, unless curbed, can prevent the country from emerging as a global economic powerhouse.  Corruption in Russia has been a hangover from the Soviet Union days. It is just that the forces of globalization have provided old hands and the up-and-coming younger generation of Russians with unprecedented opportunities to make money under the table. Of course, the exponential increase in Russia’s natural resource exports (such as petroleum products and natural gas) has not helped matters as far as overall governance is concerned. There is simply too much money in the hands of the too few.

The history of advanced nations shows that, while each had to find its own way to fight this scourge of illicit capital, the rule of law has always been essential in efforts to raise living standards.  In contrast, significant weaknesses in overall legal, institutional, corporate and political governance in many emerging market countries is posing an increasingly serious challenge for governments to meet the aspirations of the poor for a better life.

A recent study by Global Financial Integrity found that the faster rates of economic growth in India since economic reform started in 1991 have not been inclusive. Even as economic growth lifted millions out of poverty, wealth accrued disproportionately in the upper income brackets.  In fact, further research might well show that while growth rates have been on the uptick in Brazil, Russia, China, and other emerging market countries, that happy scenario has neither spawned commensurate improvements in the living conditions of their very poor nor provided an incentive for better governance.

Indeed, as in India, widespread corruption, reflected in a growing underground economy, together with growth concentrating wealth in the hands of a few, is driving illicit capital from Russia. A new GFI study released this week shows that in the decade ending 2009, Russia has generated an increasingly larger share of all illicit capital from developing countries. Such outflows average over US$50 billion annually during this period—likely a significantly understated estimate given the limitations of economic methods to capture all sources of ill-gotten capital. The overwhelming majority of the cross-border transfer of illicit capital from the country takes place through the balance of payments and not through trade mispricing.  In fact, the traditional method of estimating illicit flows would net out illicit inflows through trade mispricing which would reduce gross outflows sufficiently to give the misleading impression that Russia is a well-governed, corruption-free, country. Because the Traditional method of estimating capital flight from developing countries gives credit to where it is not due (namely netting out illicit inflows from outflows as if illicit inflows somehow benefit a country), we see the underlying methodology as deeply flawed.

To curb corruption, Russia must take a long hard look at itself beginning with those in power.  Muddling along is not an alternative for there is a real danger that endemic corruption will beget further social unrest.

* Some rights reserved by Alexanda Hulme

Both illicit financial outflows and illicit financial inflows hurt developing countries. | Photo: Ian Britton, FreeFoto.com

Capital flight, in its broadest sense, consists of the cross-border transfer of licit as well as illicit capital. The licit component of capital flight basically consists of short-term capital movements initiated by the private sector. This portion of capital flight arises as a result of private investors’ portfolio decisions in response to interest rate differentials, changes in tax policy, expectations of exchange rate depreciation, and other macroeconomic conditions.  In contrast, illegal capital flight or illicit financial flows are intended to disappear from any record in the country of origin, and earnings on the stock of illegal capital outside that country does not normally return. Of late, there has been a transition, from the term illegal capital flight to the term “illicit financial flows” in documents of the United Nations and other multilateral institutions. Illicit money is money that is illegally earned, transferred, or utilized. Somewhere at its origin, movement, or use, the money broke laws and hence it is considered illicit.  There is another reason for the change in terminology. While the term capital flight tends to place the onus of curtailing the problem upon the economic or governance problems in developing countries, illicit financial flows sees the transfer as a two-way street where the poor countries generate the flows while the developed world facilitates their absorption.

The recent Euro zone crisis and media reports on capital flight from Greece and other Club Med countries raise a number of questions on how illicit flows are estimated using economic models. While there is nothing new about the flight of capital from countries that are politically unstable, poorly governed, badly managed, or all three, economists have been quixotic in their approach to estimating these flows. Scores of research papers on capital flight published in prestigious academic journals have this recurrent theme—outward transfers of illicit capital are offset by inward illicit flows. Yet, economists have hardly paid any attention to the “inflows” indicated by traditional models of capital flight. Instead, they have automatically netted out inflows from outflows without asking whether that is warranted.

Research at Global Financial Integrity (GFI) find that the traditional method used by economists to estimate illicit financial flows seriously understate the flows as a result of automatically netting out inflows from outflows. Netting out the two make little sense when flows in both directions are harmful to a country. After all, illicit inflows are also unrecorded and therefore cannot be taxed by the government or utilized for economic development.  Moreover, there are enormous difficulties involved in correctly identifying a genuine return of illicit outflows. The main difficulty is that traditional models of capital flight used by economists, by definition, are incapable of providing any indication of capital flight reversals. While these models only indicate unrecorded flows, the genuine return of capital flight is reflected in higher recorded foreign direct investment and/or recorded inflows of portfolio capital. In contrast, the illicit inflows indicated by conventional models of capital flight benefit no one except a few corrupt individuals which only worsen the already skewed distribution of income that prevail in many developing countries. Finally, research at GFI show that netting out illicit flows distorts both the regional distribution of capital flight and the country rankings of the largest exporters of illicit capital.

The understatement of illicit flows not only hurts the cause of poverty alleviation in developing countries, but donor governments and multilaterals are lulled into believing that external aid is more effective than it really is.  In light of these drawbacks to the traditional method, GFI studies focus on estimating gross illicit flows from developing countries. We argue that only in very few cases can we substantiate the return of flight capital as an increase in recorded FDI or private short-term capital flows following such reform.

The way forward lies in clearly distinguishing two objectives. If the objective is to study the issue of illegal capital flight or illicit financial flows, economists should look only at gross outflows without any attempt to net out “inflows” either in a given year or across a time period. The reason is that the so-called inflows captured by these models, are also unrecorded and therefore cannot be used by the government for any productive purpose. If the objective is to gauge the adverse impact of illicit flows, economists should recognize that illicit flows in both directions are harmful and add them, as flows in both directions drive the growth of the underground economy. GFI studies clearly illustrate the absurdity of netting out illicit inflows from outflows. For instance, although the Club Med countries like Greece and Portugal received massive illicit inflows over the past decade, not one dime from these inflows helped them avoid the financial crisis.

Photograph by Simon Tong

Greece has been in the news a lot lately and as we all know, it has not been good news.  By all accounts, the austerity measures being imposed on the population as a condition for bailing Greece out of the financial crisis, is severe.  As Walter Mead points out in a recent blog, investors are worried that the Greeks may not stand for them.  He rightly notes that ordinary Greeks feel that the rich should pay the costs of the economic crisis and not them.  They are right.  According to an article in the Washington Post (Is austerity a Greek myth? By David Ignatius, May 3, 2010), Prime Minister Papandreou admits that corruption now robs the Greek economy by US$20-30 billion and “graft” (probably meaning bribery and kickbacks) accounts for some 8-12 percent of GDP.  If, as I suspect, the Prime Minister is talking of graft and corruption as separate components, the size of Greece’s underground works out to some 18-21 percent of GDP.  The result still falls short of the 25-30 percent of GDP estimated by most economists.

There is no question that Greece is caught between the proverbial rock and a hard place. To understand how the country got there, I shall try to trace the road map with the help of some basic economic data for the decade ending 2009.  The first striking thing is that Greece ran a sizable current account deficit that grew from 6.6% of GDP in 2000 to 15.5% of GDP with most of the increase coming in the second half of the decade.  A current account deficit basically arises from increases in import costs over export earnings. It is symptomatic of an excess of consumption over income. Greece financed this consumption boom not by drawing down domestic (public and private) savings or gross foreign exchange reserves of the central bank but through the contracting of external debt which swelled from a manageable 73% of GDP in 2000 to close to 160% of GDP by the end of the decade.

The question naturally arises: how come Greek policy makers and foreign investors never saw the debt crisis coming? The reason is that the debt to GDP ratio is not a tea leaf for an impending debt crisis–debt sustainability entails a much more complicated exercise than can be captured by any single measure. I learned that in my early years at the IMF. Forecasting external debt default is an extremely complicated task. While economic models often successfully identify countries with external debt crisis after the fact, they remain poor predictors of one.  Part of the problem in forecasting debt crisis is that we need to know what the government did with that debt.  If debt was used to finance growth enhancing projects such as investments in health and education, infrastructure, or other investments with a rate of return higher than the cost of the debt, an indebted country could very well remain solvent. Apparently, that was not the case in Greece. The government simply used the borrowed money to run an inefficient and bloated public sector even as it failed to collect tax revenues to pay back the loans. Over the years of neglect and profligacy, the dynamics of debt just grew more cruel. That is just in the nature of the animal. As debt levels have ballooned, so have the interest costs of servicing the debt. We can be sure that interest costs would eat up a sizable portion of the government budget which will itself force a sharp contraction in social programs, wages and pensions.  The life of the average Greek is about to get very hard and mostly because of rampant corruption by the rich and the powerful with the collusion of the government. No wonder they are mad.

That said, there is another insidious dimension to the Greek financial crisis that few economists have touched upon.  Even as Greece’s debt burden grew ever more onerous, its burgeoning underground economy fueled massive illicit financial flows from the country. Based on well-established economic models, Global Financial Integrity (GFI) estimates that over the past decade ending 2009, Greece lost an estimated US$160 billion through unrecorded transfers through its balance of payments.  Interesting, according to study conducted at GFI, there were illicit inflows into Greece which approximately totaled US$96 billion through the misinvoicing of trade transactions, probably as a result of import duty evasion and smuggling. Traditionally, economists have netted out the so-called inflows from outflows as if the netting of the two more accurately reflects a country’s net position with regard to these flows.  In contrast, GFI’s studies have stressed that netting “inflows” from illicit outflows makes little sense. Not only are (unrecorded) illicit inflows outside the government’s tax net, they cannot be used to sustain high-quality economic growth. The Greek study offers a stark illustration of the folly of netting inflows from outflows if ever there was one. Even as Greece “enjoyed” illicit inflows in every single year from 2000-2009 through trade misinvoicing, the country has been pushed to the verge of bankruptcy!  So economists need to take note of some festering issues in capital flight and not simply run standard economic models by rote without analyzing whether their underlying assumptions are realistic. But most economists would agree that no matter which way we slice it, flight capital has made matters much worse for Greece. In our experience, once illicit capital exits a country, it is a Herculean task for the government to get it back. The need of the hour is that Greek policy makers must not only ensure that the economy is placed on a sustainable path to debt solvency and economy growth, they must improve governance and implement economic reform so that Greeks would favor licit domestic, over illicit foreign, investments.

Estimates of illicit financial flows are based on official data published on the web-site of the Bank of Greece (central bank) and the data reported to the IMF. The shoddy quality of Greek data on balance of payments, external debt, and national accounts mean that the estimates of illicit flows may be understated.  In fact, an IMF assessment of Greece’s statistical system in 2002/03 gave high marks for professional integrity, accuracy, and reliability when in fact the Greeks have been fudging their books for a long time. Only recently, after the horse has bolted from the barn, the Eurostat, the European Union’s statistical arm, has acknowledged that statistical obscuration is a fact of life in Greece and has probably contributed to the country’s acceptance into the European Union. Even as late as last year, Greece upped its fiscal deficit to 13.6%  percent of GDP from the previously stated 12.9%.  In my experience, the IMF’s statistical assessment methods are in dire need of a thorough revamping, away from one based upon tacit official self-assessments and towards more intrusive and independent assessments including consistency checks for the entire macroeconomic accounts and feedback from international, not just domestic, users, as is currently the case.  In the end, the IMF must be the early bearer of bad news.

Judging by the violent street protests in Greece lately, it may not be feasible to return Greek economy on a sustainable path based on fiscal adjustment alone. Some sort of debt restructuring—a kinder, gentler version of outright debt default—may be necessary to help Greeks bite the bullet. This calls upon European leaders and the IMF to exercise the utmost acumen and urgency to contain the crisis through a regimen of adjustment policies that will be painful but one that the Greeks can live with.  The alternative is chaos and contagion leading perhaps to an unraveling of the European Union.

Here we discuss the difficulty of addressing complex governance issues underlying the generation of illicit flows. We start by recognizing that the accurate measurement of  complex  governance issues  through indicators is fraught with difficulties. This came to light in the course of GFI’s study. For instance, we noticed that illicit financial flows from many emerging markets were increasing even though their World Bank governance indicators were actually improving. As we discovered, this was not necessarily an anomaly—the Bank indicators were mainly focused on public sector governance while illicit financial flows are typically generated and driven by the private sector. The preponderance of the private sector in driving illicit flows can be illustrated by the fact that if corrupt government officials stash bribes abroad, they act in their private, and not official, capacity. Hence, public sector governance in some emerging markets could be improving even as their private sector governance deteriorates thereby generating illicit flows through, say, trade mispricing.

Measurement issues aside, international financial institutions have run into serious problems in dealing with governance issues through the use of conditionality in their lending programs. Take, for example, the International Monetary Fund (IMF) which typically attaches two types of conditionality on the use of its financial resources by emerging market countries.  Thus, while quantitative performance criteria (e.g., reduction of the budget deficit, accumulation of foreign exchange reserves) attached to the loans are designed to ensure that the loans are repaid in a timely manner, structural conditionality such as improvements in specific governance-related measures seek to complement quantitative benchmarks in reducing the risks of borrower default. The overall objective of conditionality is justified given that the IMF is a monetary institution whose raison d’être is the provision of short-term balance of payments assistance. However, there are a number of problems with the way conditionality has actually worked in practice.

The importance of conditionality in IMF lending began to grow in the 1970s as members’ quotas, the basis for lending, increasingly lagged the significant growth in world trade and capital flows. Both quantitative performance criteria as well as structural conditionality became stiffer as the use of Fund credit increased as a proportion of the member’s quota. By the end of the 1980s, multilateral aid agencies such as the IMF and the World Bank started to consider how governance issues could be considered as part of structural conditionality on the premise that improvements in governance could elicit a supply-side response and improve aid effectiveness. However, relatively little attention was paid to key issues—does the Bank and the Fund have the mandate, the staff resources, and the competence to design and monitor governance-related conditionality which would need to cover a bewildering range of complex issues related to both the public and private sectors?

The IMF decided to “streamline” conditionality following several studies which found that the proliferation of conditionality on borrowers had become burdensome. Several studies found that the burden of conditionality in terms of the cost of monitoring and implementation was quite heavy, particularly for Sub-Saharan Africa and Central Asia where trained staff resources are scarce and institutions are weak. The question arose—how effective was conditionality in the attainment of stated objectives? Internal IMF studies showed that the proliferation of conditionality in Fund programs led to increasing non-compliance. Senior World Bank officials such as Joseph Stiglitz and Paul Collier noted that the penalties imposed lacked moral legitimacy, that the punishment was excessive relative to the crime, and that conditionality often failed to meet its objective due to a lack of “ownership” whereby governments were convinced that compliance was in the national interest rather than merely required by outsiders.

As a result and also due to the sensitivities involved, there have been relatively few Fund programs involving structural conditionality on governance-related issues. In recognition of the complexities of the issues involved, the IMF’s guidelines on conditionality typically allow members to seek waivers on quantitative performance criterion or structural conditionality, if they are able to demonstrate to the Fund’s satisfaction that nonobservance of the conditionality will not jeopardize program implementation. In fact, the IMF has seldom, if ever, withheld disbursement of funds because a structural conditionality on governance-related issues was not met. A large part of the reason is that a structural conditionality involving a narrowly defined governance issue is seldom critical to program implementation in the sense that noncompliance would not allow the authorities to meet the quantitative benchmarks set under the program.

There are other limits to the applicability of conditionality, whether governance-related or not. Obviously, the conditionality leverage can only be used when a member approaches a multilateral lending agency for a loan. But there are many emerging markets with serious governance issues which have no need or, even, qualification for such financing. Hence, governance continues to be a serious issue in many emerging markets in spite of the best efforts of international lending institutions. Given the significant increase in illicit financial flows from emerging markets and the need to ensure greater effectiveness of external aid at a time of unprecedented budgetary pressures in donor countries, the time is ripe for multilateral agencies to adopt a comprehensive approach to improving governance in emerging markets. That, however, is a separate subject matter.

Many developed countries already experienced restricted fiscal space going into the current economic crisis. Such space is typically measured by the ability of governments to expand expenditures without jeopardizing long-run fiscal sustainability. The global economic crisis significantly worsened weak fiscal positions as governments had to undertake strong countercyclical fiscal measures. As central banks in developed countries have been increasingly obliged to accommodate the government’s fiscal needs and resort to outright quantitative easing, there has been a transition from monetary to fiscal dominance. There is a greater risk of monetization under fiscal dominance leading to an expansion of high-powered money. The resulting inflation erodes real values and is a tax that is particularly hard on those with fixed incomes. Donor country governments are therefore planning to put policy measures in place to reign in the deficits even before we have begun to climb out of the job recession. In the United States, President Obama’s proposed freeze on government expenditures applies only to a small part of discretionary spending. It is not enough to reign in the deficits for which painful cuts in expenditures and increases in taxes will be required. Generally speaking, budgetary appropriations for external aid are likely to come under pressure in most donor countries. Hence, time is running short for recipient countries to curtail illicit financial outflows and for developed countries to implement stricter oversight of banks and offshore financial centers that absorb these flows. Developing countries cannot count on a continued increase in bilateral assistance to offset the erosion of real values through inflation let alone counteract the reduction in aid effectiveness due to unrecorded leakages of capital.

In a perfect statistical world, the exports of all countries must equal imports of other countries after adjusting for the cost of insurance and freight (known as c.i.f. factor) and other factors (such as exchange rate changes during transit, method of converting trade values to a common currency such as the U.S. dollar known as exchange conversion practices, etc.).  As far as international trade is concerned, the world is a closed system so that there is an objective method of estimating the size of measurement errors related to bilateral trade statistics.  If discrepancies between the exports and imports  of all trading countries grossed up to the world are supposed to be zero in a perfect statistical world, it stands to reason that deviations away from zero would largely capture underlying statistical issues in measurement. According to the IMF which publishes the DOTS, (see page 141, Memorandum items, Balance of Payments Statistics Yearbook 2007, Parts 2 and 3), the goods balance (the discrepancies between exports and imports  grossed up on a global scale) as a percent of “gross goods transactions” (meaning exports plus imports) fluctuated between 0.2 to 0.6 percent for the period 2002 to 2006 covered in our study. This is not an unacceptably high error term. However, the relatively small global trade discrepancy should not be interpreted to mean that there are no statistical problems in recording trade between individual countries. The global discrepancies simply indicate that there are no systematically large discrepancies between exports and imports  that can cast suspicions on the data capturing trade flows between the world’s major trading blocs involving developed and developing countries.  Large, systematic discrepancies between these major trading blocs would show up in the global discrepancies and there is  just no evidence of that. Note that the goods balance used by the IMF to reflect statistical errors in recording, can be consistent with large two-way trade discrepancies between trading partners captured by the trade mispricing model. To illustrate, total world exports in 2006 amounted to US$11.978 trillion while total world imports totaled US$11.845 trillion, resulting in a balance of US$133 billion (rounded). This net position or balance can be consistent with any set of large discrepancies denoting export under-invoicing and import over-invoicing. A trade mispricing estimate of around $500 billion in 2006 in GFI’s study results from the addition of export under-invoicing and import over-invoicing, which can be mathematically consistent with a small goods balance of US$133 billion.

Generally speaking, there are methodological issues and related measurement errors in virtually all areas of economic statistics, not just those confined to international trade statistics. There is no reason to believe that data on international trade are any more problematic than say estimates of national accounts (used in numerous country studies and policy formulations), fiscal stocks and flows, or consumer and producer prices to name a few. Does this mean that economists should stop all research and policymakers should stop formulating policy because the data are not perfect? That would be absurd. Economists seldom have a perfect set of data to work with. Instead, as was done in GFI’s study, data limitations need to be addressed in various ways including the use of statistical and conditional filters.

Efforts to improve transparency require improving data availability and quality in specific data sets which can be overseen, managed, prioritized, and assisted by relevant international organizations which are well-placed for this task. In my opinion, that would be a good way to use the tax payers’ money which supports these organizations. There is really no alternative to statistical capacity building to increase the availability of high-quality data.  The time is right for international organizations to push for improving transparency by expanding data availability and dissemination by member governments. Such a policy should at least improve the signals for an impending financial crisis even if we cannot entirely avoid one.