Sovereign Risk

We are now in a new phase of the crisis -- the political phase -- and tough political decisions need to be made. Time is of the essence.

The risk free nature of government bonds, one of the cornerstones of the global financial system, has come into question as the global crisis unfolds.

As we said in the just-published Fiscal Monitor update, fiscal policy this year in some leading advanced economies is shaping up to be quite different from what was expected just last November.

In emerging markets, policymakers must act now to avoid future crises. It is important to maintain the appropriate mix of macroeconomic and prudential financial policies to deal with the challenges posed by capital inflows.

Public debt sustainability in most advanced economies used to be a non-issue, or at most a back-burner one. A couple years back, if the topic came up,...