14 We can see that they have not been entirely accurate. The forecasts we have produced for the exchange rate of the krona since the exchange rate was allowed to float have often indicated that the krona would strengthen. Typically, however, this strengthening has only materialised in periods preceded by a substantial weakening of the krona exchange rate, as in the periods 2002–2003 and 2006–2007. 12  Rose and Yellen (1989) is a classical study in this field. 13  The effects of a weaker krona on the Swedish economy were also described as an alternative scenario in MPR08:3. 14  The TCW index weighs together the krona exchange rate against other currencies according to the other countries’ share of Sweden’s foreign trade. The Riksbank’s forecasts in the Figure are from the first report (Monetary Policy Report or Inflation Report) of that year, which has usually been published in February. BIS Review 3/2010  5  Figure 2 The Riksbank’s forecasts for the krona exchange rate (TCW index) Index, 18 November 1992=100  Source: The Riksbank. Figure 3 Consensus forecasts for the krona exchange rate (approximate TCW index) Index, 18 November 1992=100  Sources: Consensus Economics and the Riksbank. 6  BIS Review 3/2010  However, the Riksbank has certainly not been alone in expecting that the krona will strengthen. Figure 3 shows the forecasts according to “Consensus forecast” for an approximate TCW index. 15 This can be said to represent the average of the other analysts’ forecasts at the same point in time.
Establishing an Oil Stabilisation Fund, which ensures that the government balance sheet is strengthened when oil price movements are favourable, should help insure against the type of debt servicing problems faced by many emerging market economies during the difficult international environment of 1997-98. Iran was able to maintain an excellent debt service record through this period, and prudent debt management policies should help preserve this record going forward. Total external debt is expected to decline to around 10% of GDP this year, and short-term debt to only about 40% of reserves, having fallen from around 65% in 1999/2000. The strong external position has encouraged the World Bank to approve loans of some $ million this year. Importantly, it should hold Iran in good stead in attracting inflows of private capital, which are so crucial to a country’s long-term growth prospects. The international financial crises of 1997-98 stemmed largely from vulnerabilities within countries’ financial systems. In the aftermath of the crises, the official community has been assisting the financial sectors in emerging market economies through technical assistance and improved surveillance. This has been an area of notable success in the redesign of the international financial architecture. A key step in this regard has been the joint IMF-World Bank initiative of Financial Sector Assessment Programs, or FSAPs.