Latvia stands out as the East European country hardest hit by the global financial crisis; it lost approximately 25 percent of its GDP between 2008 and 2010. It was also the most overheated economy before the crisis. But in the second half of 2010, Latvia returned to economic growth. How did this happen so quickly? Current Latvian Prime Minister Valdis Dombrovskis, who shepherded Latvia through the crisis, and renowned author Anders slund discuss why the Latvian economy became so overheated; why an IMF and European Union stabilization program was needed; what the Latvian government did to resolve the financial crisis and why it made these choices; and what the outcome has been. This book offers a rare insider's look at how a national government responded to a global financial crisis, made tough choices, and led the country back to economic growth.

Why has the economy of Latin America responded more positively than Asia, Europe or the United States after being hit by the recent global financial crisis? Three years after the worst of the crisis, Latin America's GDP is 25 percent higher than its precrisis level. José De Gregorio, Governor of the Central Bank of Chile from 2007 to 2011, tells the story of how Latin America has responded to the crisis with a perspective that only an insider can have. De Gregorio focuses on the seven largest economies of the region, Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela (90 percent of the region's output). He argues that Latin America was resilient because of good macroeconomic policies, strong financial systems, and "a bit of luck."

Lessons from Latvia's banking crisis can be applied in other transition economies.In the spring of 1995, Latvia experienced the largest banking crisis in the former Soviet Union to date, involving the loss of about 40 percent of the banking system's assets and liabilities. Fleming and Talley outline the Latvian authorities' strategy for developing the banking system and identify how and why it unraveled. They discuss the World Bank's role and the lessons to be learned from the crisis, including the following:Banking systems are exposed to stress in several major ways. Enterprises - the main borrowers - become subject to hard budget constraints (are cut off from government funds) and are privatized. Inflation declines so enterprises can't rely on rapidly increasing revenues to service bank debts. Economic reform tends to produce banking systems that are mainly privately owned - making them vulnerable to withdrawals, as the public does not assume that failing banks will be bailed out.The government must protect against this vulnerability by establishing a proper legal framework for banking, developing effective bank supervision and regulation, and implementing solid accounting, disclosure, and auditing standards. It must also develop effective ways to handle problem banks and to close insolvent banks promptly.For banks in the state sector to be a source of strength to the banking system, they must have strong effective management and be relatively free from political influence.Outlier banks - those expanding assets very quickly or offering particularly high deposit rates - should be subject to intense supervision.Four things must be done to prevent fraud, incompetent management, and excessive risk-taking: Carefully screen those who want to get into banking; subject all banks to thorough, frequent onsite examinations and assign the best examiners to the largest banks; require annual audits of all banks by reputable auditing firms required to report significant irregularities to authorities; and act decisively when fraud or bank difficulties are detected or suspected.This paper - a product of the Enterprise and Financial Sector Development Division, Europe and Central Asia, Country Department IV - is part of a larger effort in the region to distill the lessons of the first five years of transition.

This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.

From Crisis to Recovery traces the causes, course and consequences of the “Great Recession”. It explains how a global build up of liquidity, coupled with poor regulation, created a financial crisis that quickly began to make itself felt in the real economy.

The economic crisis that emerged in America in 2008 unleashed a veritable epidemic of ill health around the world. However it was Iceland, whose population of three hundred thousand had the world's highest GDP per capita and counted itself the happiest of countries, that caught the worst cold. It has nearly killed them. No story from the economic crisis of 2008 is more evocative than I celand's. The names may be unfamiliar-Johanesson, Bjoergolfsson, Oddsson-but their exuberance, greed, and miscalculation have many counterparts on our shores. And however traumatic the collapse of individual companies may be in the United States, in Iceland's case an entire country melted down. All the wealth accumulated in the previous decade-during which a new breed of Icelanders had dared to believe they could compete economically on an international level, during which Reykjavik became the Capital of Cool-disappeared practically overnight. Iceland's story shows how closely the world economy is interconnected: The default on subprime mortgages in the U .S. led to the collapse of Lehman Brothers, which led directly to the run on Iceland's banks, which forced local authorities in Britain to switch off the heating in their classrooms. With panache and color, Roger Boyes tells the inside story of the bankrupting of I celand: how it happened, the human dramas-from politicians to financiers to fishermen-that continue to swirl around it, and the lessons we can not ignore. Published on the first anniversary of its collapse, Meltdown Iceland is a cautionary tale for our times, an authoritative and compelling account of the financial destruction of a tiny country whose saga should resonate for us all.