Mindaugas Juodis, Vytautas Valvonis, Raimondas Berniunas, Marijus Beivydas

The paper analyses the practical aspects of granularity adjustment for quantification of the contribution of name concentrations to portfolio risk: proposals are made for the unique choice of systemic risk variance; aggregation of credit risk parameters from exposure to counterparty level is analysed; granularity adjustment capital allocation to individual counterparts is being discussed, proposing to include single name granularity adjustment capital into performance measures and risk based pricing tools; Monte Carlo approach for estimating single name concentration risk capital is being introduced. Practical aspects of granularity adjustment estimation are illustrated by empirical calculations using real bank portfolio data and the comparison with Gordy and Lütkebohmert results is presented.

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Regina Paliulyte

Diversity of economic activity and macroeconomic policy concepts, rise of new scientific theories, experience of the countries in regulating the behaviour of economic entities, and trends in globalisation of the economy are changing the conception of the stabilisation policy. Analysis of the historical development of the theories clarifying economic activity and stabilisation policy issues shows that, first, the current period of globalisation is characterised by convergence of the opinions of the representatives of different scientific trends in estimating the above phenomena. This is proved by the rise of a new neoclassical synthesis theory in the last decade of the 20th century. According to the models submitted by the representatives of this scientific trend, fluctuations in economic activity are not just optimal reaction of economic entities to shocks – they are also a result of inflexibility of nominal wages and prices. In descriptions of global interrelationships, different models and theoretical principles are being combined: Keynesian approach is applied for deve- loping models that support classical tradition, or, in contrary, modern Keynesians adopt the methods of research of new classics.

By the way, along with the development of the science of macroeconomics, economists agree that – under unfavourable conditions, especially in case of recessionary shocks – enforcement measures of the state have favourable effects on maximisation of utility of economic entities. Monetary policy, like fiscal policy, is acknowledged as having weight not only in the process of stabilisation of economic activity but also in strengthening of self-regulation of the market.

Second, changes in the global economy initiated a discussion about the viability of national economic policy when stabilising fluctuations in economic activity that spread through international channels. Sophistication of interrelations between macroeconomic indicators, and growing uncertainty under the conditions of technological progress and structural restructuring posed a challenge of how to stand out against fluctuations in economic activity in the environment when national economies get increasingly interdependent. Scientists examining the challenges posed by globalisation have raised two hypotheses: that of convergence of economic policy and that of divergence. The convergence hypothesis predicts the convergence of national economic policies and decreasing strength to overcome fluctuations of economic activity on their own. Growing openness of national economies and similar economic activity require co-ordinated actions, secured by international agreements, coalitions and other integrated formations. The better international co-ordination of economic policy, the less space is left for national economic policy, moreover, the strength of this policy becomes weaker. Stabilisation problems are addressed at the global level.

Divergence hypothesis emphasises that globalisation increases the strength of national economic policy. This is determined by insufficient degree of convergence of the countries and the impact of the economic structure on the stabilisation process. Under the conditions of inadequate convergence of the countries, lack of clear criteria enabling to define the character and degree of internationalisation of economic policy, the major role is played by the mechanism of adaptation at the national level. It is especially important for small countries that do not carry out independent monetary policy but are strongly affected by fluctuations of economic activity spreading between the countries. Under the conditions of the fixed exchange rate, opportunities of application of stabilisation measures depend heavily upon the financial, price and wages policies pursued in the country.

Another argument proving the increasing strength of national economic policy is that globalisation prompts changes in economic structure. Formation of efficient institutions helping to withstand competitive pressure and ensure mobility of labour force and capital as well as implementation of structural reforms is a prerogative at the national level.

Therefore, taking the opportunity offered by international cooperation and coordination under the conditions of global economy, countries pass over a certain portion of their competence to international organisations, and their national power and strength to stabilise fluctuations in economic activity decrease. However insufficient degree of convergence, specific institutional design, structural reforms and distinctive management of resources determine a divergence trend visible in economic policy. Stabilisation problems are addressed at the national level.

Zivile Einoriene, Stasys Kropas

Foreign loans play an important role in financing transformation process from administrative to market economy. However, the effectiveness of the use of the foreign loans to domestic economy critically depends on the institutional setting for foreign debt management systems. Authors of the article analyze the final results of two projects– EC PHARE project for SME (Small and Medium Sized Enterprises) and the World Bank Enterprise and Financial Sector Assistance project – related to the use foreign loans, which were managed by the Bank of Lithuania and channeled throw commercial banks to the real economy.

The main goal of the article is to review the results of the management of the projects through the whole cycle and to access the possibilities of multiplying positive experience in current juncture of the global credit crunch. Authors first analyze the economic environ- ment in which both projects where prepared and implemented, the significance of the foreign loans and the role of the Bank of Lithuania as fiscal agent in preparing and managing the projects. Than they review the main features of the projects and issues related to the preparation and implementation of the projects. Thereafter, the impact of loans to different sectors of the economy is analyzed and overall results of the projects are presented. And finally, the assessment of the main positive aspects and lessons learned that could be usefully used at the current juncture of the global credit crunch is done.

Both projects were initiated at the time when normal access of the companies to the credit recourses was impossible either because of high inflation and interest rate for the loans provided, or because of the lack of credit history and lack of adequate collateral or because of the lack of macroeconomic stability or institutional and administrative weakness of the banking system and the lack of the banking experience in preparing and accessing the risks of the projects.

Both projects got a high grade of assessment from the European Commission and the World Bank experts. Even the detailed comparisons of the different forms of the management of foreign loans in terms of effectiveness are rather difficult, the quick overview suggests that this way of use of foreign loans is preferable because of clear targets, transparency in preparation and implementation process, independence and accountability of managers. However, most important factor of the success was the use of market principles, involvement of commercial banks and independent audit institutions in the process of preparation and implementation of the projects. Finally, the involvement of the Bank of Lithuania as a fiscal agent for the projects was a very important factor for the success because of better administrative capacity compared with other institutions and presence of reputation risks.

Even due to the number of reasons the fiscal agency functions of the Bank of Lithuania were not expanded further, very positive results of both projects suggest, that this form of foreign loans management could be explored further especially at the time of the global credit crunch and lack of credit resources for financing of the economy. In the authors’ opinion, this kind of mechanism could be a viable alternative for a such emerging country like Lithuania to ensure accessibility to credit resources for business.