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Benign financing conditions since the global financial crisis and, more recently, rising financing needs have fueled a rapid increase in credit to the nonfinancial private sector, especially to the corporate sector, in emerging markets and developing economies. Credit growth has been most pronounced, and nearing the pace associated with past credit booms, in commodity exporting countries. In contrast, in commodity importers, credit-to-gross domestic product ratios are elevated but have been stable or shrinking over the past few years. That said, in a few, mostly energy exporting, emerging and developing countries, credit to the private sector is now near levels that have been associated with past episodes of financial stress.

After two years of fragile recovery from the global recession, as a group the six South East European countries (SEE6) Albania, Bosnia and Herzegovina (BIH), Kosovo, FYR Macedonia, Montenegro, and Serbia are experiencing a double-dip recession in 2012. Deteriorating external conditions, the impact of the severe winter on economic activity, and a continuing rise in unemployment early in the year took a toll on consumption, investments, and exports. In this fragile environment, Serbia, Albania, and Montenegro in particular will need to persevere in reducing fiscal deficits and bringing down debt, even as they must continue to improve the investment climate and reform labor markets and the public sector. In all SEE6 countries, public sector arrears pose special challenges to fiscal management and the private sector, and there are unfinished, structural reforms agendas. After two years of deep crisis, a sluggish recovery, rising unemployment and poverty, and a continuing recession even with the best efforts on fiscal consolidation and structural reforms, which must continue there is a danger that SEE6 countries are caught in a vicious circle that reinforces the cycle of long-term austerity, low if not negative growth, high debt, and even higher risks of social upheaval. To prevent this outcome, this report argues, SEE6 governments need to redouble their efforts to accelerate fiscal and structural reforms. These countries have largely exhausted their fiscal space and reduced public investment (except Kosovo, an outlier) to a fraction of what is needed to maintain public capital stock in critical infrastructure. Private investment is suppressed by the lack of productive, complementary public investments, slow credit recovery, and depressed domestic demand. External demand is minimal, and exports are not only too few, they are prevented from becoming an immediate, new engine of growth by infrastructure, finance, and other deficiencies. If such accelerated reforms materialize, external support well-coordinated and targeting the region as a whole, not just individual countries from the European Union (EU) and global international financial institutions (IFIs) could help ease the transition to a more sustained growth in medium term. In November 2012, the European Investment Bank, the European Bank for Reconstruction and Development, and the World Bank announced 30 billion in financing for Central and South East European countries over the next two years. In SEE6 countries, this timely initiative would likely be delivered via the Western Balkans Investment Framework (WBIF) and other IFI resources. Investment Promotion Agency (IPA) resources will also be important, especially in supporting institutional reform and rural development. By focusing on major infrastructure of regional significance (rail, highways, energy, and gas) and on jobs and small and medium enterprises, the efficiency of investments, growth, and employment could be substantially heightened. However, additional financing for growth and jobs could prove effective only if accompanied by intensified fiscal and structural reforms, especially in the areas of investment climate, labor markets, and governance.

This is the final consolidated report of an extensive program to assess the financial performance and capacity building needs of the UPK Revolving Loan Funds under the PNPM Mandiri project. As explained in the report, the assessment program covered 508 rural and urban UPKs in the provinces of Central Java, Yogyakarta, Nusa Tenggara Timor and West Sumatra. The aim was to cover 30 percent of rural UPK RLFs in these four provinces and 10 percent of the urban UPKs in order to establish the achievements and determine areas of improvement to enable these UPKs to provide a better service to the low income families in their operational areas. This report covers all 267 rural UPK RLFs and 241 urban UPKs identified for the purpose in the four provinces.

Banks are linked through the interbank deposit market, participations like syndicated loans and deposit interest rate risk. the similarity in exposures carries the potential for systemic breakdowns. this potential is either weak or strong, depending on whether the linkages remain or vanish asymptotically. it is shown that the linearity of the bank portfolios in the exposures, in combination with a condition on the tails of the marginal distributions of these exposures, determines whether the potential for systemic risk is weak or strong. we show that if the exposures have marginal normal distributions the potential for systemic risk is weak, while if e.g. the student distributions apply the potential is strong.