[Conference] Managing Capital Flows and Growth: Amid the Sovereign Debt Crises
|Venue||Lotte Hotel, Seoul, The Republic of Korea||Date||2012-06-04 ~ 2012-06-07|
|Host||KDI School, World bank institute, Bank of England, CPBS, Ministry of strategy and finance||Organizer||KDI School, World bank institute|
|Sponsor||KDI School, World bank institute, Bank of England, CPBS, Ministry of strategy and finance||Contact|
Managing Capital Flows and Growth: Amid the Sovereign Debt Crises
June 4 – 7, 2012
Lotte Hotel, Seoul, The Republic of Korea
<Module 1> on Challenges to Global Economic Growth
Session 1: Challenges to Managing Capital Flows and Growth in a Multi-polar world economy
The global economy has entered a period of multi-polar growth with large developing countries leading the way as the new and most dynamic growth poles, thanks in part to increased mobility of goods and services and capital flows. As a result, the G7 share of global GDP declined rapidly from 45 to 37 percent in just 8 years from 2000 to 2009. This is an unprecedented and historic shift. Although the new globalization landscape which has emerged from this transformation is more inclusive—with developing countries accounting for an increasingly larger share of global trade and foreign reserves—it has also come with a number of challenges, not least global transmission of risks and recession, rising fiscal deficits, and the sovereign debt crises in Europe, and capital flows from low-income to high-income countries. This session provides a comprehensive overview of challenges associated with the new globalization landscape and the challenges for global growth and job creation. It also provides a preview of the modules /sessions to be covered during this seminar, as well as topics for participant presentations.
Speaker: Bert Hofman, Chief Economist and Director, East Asia and Pacific Region, World Bank
Session 2: The Sovereign Debt Crises: How Severe are the Challenges
Recent developments in Europe have brought sovereign debt issues to the top of the global economic agenda. This session will examine the new trilemma between monetary stability, financial stability and sovereign debt sustainability; the systemic interplay between sovereign debt and the financial health and interconnectivity of creditors; financial-market interventions by central banks in government-debt markets; the risk of adverse debt dynamics in countries with a low saving rate relative to investment, forcing them to rely in part on inflows of foreign capital to finance their budget deficits; the importance of gross indebtedness of countries; the trade-off between fiscal consolidation and growth; the issue of fiscal rules and debt brakes; the implications for debt contracts and CDS markets; and the increasingly blurry distinction between public and private balance sheets due to contingent liabilities.
Speakers: Ole Rummel, Bank of England
Main Discussant: Ramon Moreno, Head of Economics for Latin America, BIS
<Module 2> Crisis Resolution and Lessons from the Past
Session 3: Sovereign Debt Crisis Resolution in the context of developed countries: what is new and different this time?
This session will discuss the direction of debt resolution in Euro zone crisis and compare with those of the past. The euro zone crisis has revealed important new risks of “market contagion” and revealed the traditional “sovereign guardians of global financial stability” in the G-7 as remarkably impotent in the face of their own sovereign debt crises. A prolonged and volatile interaction between financial markets and domestic and global political leaders seems a prerequisite to foster the necessary political will to move towards a resolution. This has important implications from a “crisis resolution perspective” and marks a decisive break from past debt and financial crises in Asia, Russia and Latin America. The fact that seemingly at least parts of the “bailout funds” for the euro area has been and will likely continue to come from G-20 countries with considerably lower GDP/capita than the recipient countries raises another host of legitimacy and global governance questions.
Speaker: Jacob Funk Kirkegaard, Research Fellow, Peterson Institute of International Economics
Main Discussant: Jinsoo Lee, KDI School
Participants present specific country issues
(1) Mr. Martin Molosag, Deputy Governor of the National Bank of Moldova – “Capital Flows and Growth”
(2) Other Countries’ Senior Officials
Session 4: Monetary Unions: Lessons from the EMU and Issues with the Euro
The differential fiscal and economic situations of member European Monetary Union countries have raised the question of what to do when a one-size-fits-all currency no longer fits all. Sticking to budgetary rules implies added pain for non-complying countries, while not enforcing the rules could encourage other countries to demand similar treatment, encourage inflation, and undermine the stability of the euro. This session examines the costs and benefits of monetary unions, with special emphasis on the current challenges faced by the EMU. It will also assess the current policy measures to address the issues related to the Euro Zone, and future options.
Speaker: Reuven Glick, Group Vice President, SFRB
Main Discussant: Jacob Kirkegaard, Peterson Institute of International Economics
Session 5: Capital flows and Debt Issues in Eastern Europe: stylized facts, challenges and policy responses
This session will highlight the feature of capital flows before, during and after the 2008 global financial crisis for emerging European countries, and implication of the recent debt crises. In particular, it will provide an overview of the dynamics of capital flows in Eastern Europe, discuss the implications of cross-border capital flows for macroeconomic stability and financial development and highlight the challenges and issues associated with cross-border regulation of capital flows in eastern European countries. Specifically, it will assess the sovereign debt issues in these countries, such as Hungary which was down-graded, whether they would pose a significant risk for a full fledged crisis or not, and the appropriate policy responses.
Speaker: Ole Rummel, Bank of England
Main Discussant: Mark Spiegel, SFRB
Session 6: The role of Macro-Prudential and related instruments
Recurrent capital inflows pose important challenges for authorities in emerging market or developing economies seeking to preserve financial stability. Authorities have used a number of instruments to mitigate the effects of capital flows, and the global financial crisis has raised interest in examining them from a financial stability, or “macro-prudential” perspective. This session will discuss some of these instruments, including foreign exchange market intervention and foreign reserve accumulation; measures to strengthen bank balance sheets and capital and measures to maintain the quality of credit or to influence credit growth or allocation, a financial transaction tax or “Tobin Tax”, and capital controls. Certain implementation issues are also discussed, including signals to respond to, timing of prudential measures and pro-cyclicality and effectiveness and calibration. An unresolved question is how the instruments described are to be used in conjunction with interest rate policy. Over the medium term, these instruments raise concerns because they may impair the development of the financial system.
Speaker: Ramon Moreno, Head of Economics for Latin America, BIS
Main Discussants: Hyun Song Shin, Princeton University/ Jacob Kirkegaard, Peterson Institute of International Economics
Session 7: Country Cases
(1) Lessons from Crisis and Macro-Prudential measures in Korea
Korea has experienced the two financial crises in 1997 and 2008, which severely affected Korean financial market and led to massive foreign outflows. After the global financial crisis originated in the US in 2008, Korea has tried to prepare sound macro-prudential measures to cope with the volatility of foreign capital flows. Korea adopted Macro-prudential Stability levy in April, 2011. This session will compare the policy responses and macro-prudential measures between the two financial crises in Korea, and discuss the implication of these measures for the global financial markets.
Speaker: Yitae Kim, Director for International Finance Division, MoSF
(2) Other Country Case
Speaker: Mr. Fraziali Ismail, Director at Bank Negara Malaysia – “Macro-prudential policies in Malaysia”
(3) Discussion: Lessons and Future Directions
Main Discussant: Hyun Song Shin, Princeton University/ Jacob Kirkegaard, Peterson Institute of International Economics
<Module 3> on Policy Responses to Crisis and Available Options for Regulatory, Monetary and Exchange Rate Policies
Session 8: Emerging Regulatory Challenges to the Global Financial Architecture
The global economic and financial crisis triggered by the US sub-prime crisis highlighted the risks for financial deregulation for growth, and more generally for the overall international financial architecture in a context of rapid transmission of risks. This crisis has raised the specter of regulatory challenges in a context of increased financial deregulation. Some of these challenges include the management of assets and price bubbles, moral hazard under the too-big-to-fail underlying hypothesis, narrow versus broad banking, domestic versus global regulation. This session provides a comprehensive overview of financial regulatory challenges which have emerged from the global crisis and discusses the upgrade to Basel II and ongoing trends and thinking in the policy arena.
Speaker: Hyun Song Shin, Princeton University
Main Discussants: Mark Spiegel, SFRB/ Ramon Moreno, BIS
Session 9: Monetary Regime and Capital Account Volatility –an empirical analysis
This session examine the relationship between the adoption of formal monetary regimes and capital account volatility, before the global financial crisis using a cross-country panel from 1974 through 2010, and during and after the crisis with a cross-sectional sample. We pay special attention to formal inflation targeting regimes, but also examine the impact of adopting fixed exchange rate pegs. Our panel results indicate that that inflation targeting countries have lower capital and current account volatility, and also exhibit lower and less volatile inflation on average. These results are largely robust to the inclusion of time fixed effects and other robustness checks. However, they are not robust to the inclusion of country fixed effects, leaving open the possibility that the inflation targeting decision is driven by other country characteristics that also are associated with superior economic performances. Our panel results for countries pursuing exchange rate pegs are similar, as are our cross-sectional results for the crisis period.
Speaker: Mark Spiegel, SFRB
Main Discussant: Dongchul Cho, KDI School
Session 10: Reserve Currency Issues
The US response to the financial crisis has dramatically increased its fiscal deficit and raised the spectrum of inflationary pressures. At the same time, the value of the US dollar has continued its steady decline. In response, a number of US creditors have once again expressed concerns about their dollar-denominated assets. This session discusses the role of the US dollar as reserve currency in a changing world. It also reviews some of the long-term challenges expected in the global currency markets within the framework of the new globalization landscape.
Speaker: Reuven Glick, SFRB
Main Discussant: Ole Rummel, Bank of England
Session 11: Issues related to Real Asset Bubbles, and Regulatory Options
As the recent global financial crisis showed, real estate booms can have disastrous consequences. This session will discuss the policy alternatives available to contain as well as prevent real estate bubbles. The session will broadly examine real estate boom-bust in various countries and also shared Korea’s experience in responding to the real estate boom. It is hoped that this session will offer some insights and policy implications in managing real estate boom-bust from causing financial and economic crisis.
Speaker1: Deniz Igan, IMF (40 min)
Speaker2: Man Cho, KDI School (40 min)
Main Discussant: Reuven Glick, SFRB
<Module 4> on Policy Options for Managing Capital Flows
Session 12: Challenges of Large Financial Institutions: addressing systemic and moral hazard risk
This session seeks to contribute to the on-going discourse on developing a policy framework to address systemic and moral hazard risk associated with systemically important financial institutions (SIFIs). Addressing a risk of large, complex, and interconnected financial institutions to the financial system requires a multi-faceted policy approach that comprises more effective resolution framework to resolve SIFI failures, more loss absorbency capacity to reduce the systemic risk and minimize the impact of failed SIFIs, greater supervision, and the more robust financial market infrastructure. This policy framework applies to financial institutions that are systemic at a global level, but should also be extended to domestic SIFIs.
Speaker1: Mark Spiegel, Vice President, SFFRB (30 min)
Speaker2: Gongpil Choi, Senior Advisor, Korea Institute of Finance (30 min)
Main Discussants: Ramon Moreno, BIS/ Ole Rummel, BoE
Session 13 – Multipolar World and Risks for 2012-13 and Global Policy Reforms (Panel Discussion)
This session will discuss policy changes necessary to prevent the recurrence of major problems (e.g. currency wars, prevention of banking and financial crises in the future)
Moderator: Yan Wang, World Bank
Discussants: Reuven Glick, SFRB/ Mark Spiegel, SFRB / Ole Rummel, BoE / Ramon Moreno, BIS/ Jacob Kirkegaard, Peterson Institute of International Economics/Joon-Kyung Kim, KDI School