FRANKFURT (MNI) – The following is the verbatim text released by
the European Central Bank on Friday following the fifth high-level
seminar of the Eurosystem and Latin American Central Banks:

The economic implications of and the policy responses to global
imbalances and financial flows were the main focus of the discussions
held at the Fifth High-Level Seminar of the Eurosystem and Latin
American Central Banks that took place today in Madrid, under the
chairmanship of Miguel Fernndez Ordez, Governor of the Banco de
Espana and Jean-Claude Trichet, President of the European Central Bank.

The Seminar, which was hosted by the Banco de Espaa and jointly
organised with the European Central Bank, was geared to building on the
policy dialogue between central bankers of Europe and Latin America
following the fourth seminar in Mexico in 2009.

The Seminar was widely attended by governors and high-level
representatives of Latin American and Eurosystem central banks, as well
as by high-level representatives of the Center for Latin American
Monetary Studies and the European Commission.

Global rebalancing

The first session focused on the issue of global imbalances and
global rebalancing. In this regard, Governors discussed the prospects
and risks of a re-widening of global imbalances as well as the link
between global imbalances and the global financial crisis.

Governors highlighted the fact that the reduction in global
imbalances that occurred during the crisis might not be lasting,
stressing the need to tackle the structural determinants of those
imbalances. It was further noted that external imbalances also reflected
internal imbalances, and that, as a consequence of the crisis, these had
shifted in numerous countries from private imbalances to public sector
deficits. In this context, in deficit countries, promoting national
savings was considered of the essence. Moreover, in the case of surplus
economies, rebalancing towards domestic demand was considered as
appropriate. Particularly in the case of emerging surplus countries,
reforming and strengthening social safety nets and developing domestic
financial markets would be instrumental to achieve global rebalancing.
In general, exchange rate flexibility should be enhanced so as to
reflect underlying fundamentals. Finally, the importance of
international policy cooperation was deemed key to address global
imbalances.

Financial flows and macroprudential risks

The second session concentrated on the role of financial flows in
the transmission of shocks across countries. In particular emerging
markets have been affected by this issue, as capital flows driven by
global factors have at times induced domestic asset price booms and
excessive appreciation pressures, complicating domestic macroeconomic
management.

Participants agreed that exchange rate flexibility may act as an
important shock absorber for countries facing strong and volatile
capital inflows, while capital controls should be used with caution, due
to the lasting distortions they entail. In addition, a sound and
resilient financial sector would also help to accommodate those flows.
It was also recognized that there is a role for macro prudential tools
to mitigate leverage, and that work is in progress in this domain.
Participants also examined the role of global safety nets such as i.a.
IMF new credit facilities.

Global policy cooperation

The third session explored the global policy response following the
financial crisis. Governors addressed the latest initiatives at the
global level, including an assessment of the degree of cooperation
attained between countries, particularly advanced and emerging
countries, and the improvement of the global safety nets.

Governors from both regions shared the view that the crisis has
reinforced the need for global policy cooperation. Global governance has
become more inclusive, and has attained stronger financial, economic and
regulatory focus. In particular, Governors welcomed the creation of the
G20 Framework for Strong, Sustainable and Balanced Growth and the
effective cooperation at central bank level. Participants agreed on the
need to achieve further progress in the areas of international policy
surveillance and global cooperation.

* * *

The governors thanked the Banco de Espaa for the organisation of
the Seminar and underscored the value of this unique form of policy
dialogue between Latin America and Europe, which they will continue in
the future.

The Sixth Edition of the Seminar will take place in Chile in 2012.

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