1. New Policy Challenges for Macro and Financial Stability in LAC* Eduardo Fernández-Arias Research Department ( Personal views) G-20 Seminar on Monetary Policy and Macro-Prudential Regulation with High Level of Liquidity Rio de Janeiro, June 2011 * Useful reference: IDB Macroeconomic Report 2011: One Region, Two SpeedsIDB Macroeconomic Report 2011: One Region, Two Speeds

2. 1. Temporary external shocks leading to surging capital inflows and high commodity prices urgently called for macroprudential policies to ensure financial stability in most LAC countries.

3. 2. LAC, especially in South America, is in fact making use of a vast array of macroprudential tools to ensure financial stability after the boom.

4. 3. Are LAC countries correct in using such a profuse arsenal of macroprudential tools of financial policy with the objective of financial stability, rather than relying on monetary policy? YES, but they all need to be coordinated by CB

5. 4. However, is financial stability the only objective of these financial policies? No. They often contribute to the overall countercyclical effort of smoothing the cycle.

6. 5. Financial policy contributes to overall countercyclical policy beyond basic financial stability in many important ways when monetary policy is insufficient

7. 6. How welcome should countercyclical financial policy in Emerging Economies (EE) be from a global, G20 viewpoint? There are tradeoffs

8. 7. If moderation in some EE countercyclical financial policies is called for to produce a globally efficient outcome, how can G20 cooperate to achieve it? Set up an insurance mechanism backed up by Advanced Economies (AE) in exchange for weaker countercyclical financial policies in EE.