Press Release No. 06/149

Press Release: IMF and Singapore Government Host Seminar on Crisis Prevention in Emerging Market Economies

July 11, 2006

A high-level seminar "Crisis Prevention in Emerging Market Economies," jointly organized by the International Monetary Fund (IMF) and the Singapore Government, was held in Singapore on July 10-11, 2006, with the participation of Mr. Heng Swee Keat, Managing Director of the Monetary Authority of Singapore, and Mr. Takatoshi Kato, Deputy Managing Director of the IMF.

The seminar, which took place in the run-up to the IMF/World Bank Annual Meetings in Singapore this September, brought together a distinguished group of international policymakers and economists, whose discussions focused on:

• Distilling the lessons learned from recent crises;

• Assessing the challenges for macroeconomic and financial policymaking created by open capital accounts;

• Analyzing the issues raised by sovereign self-insurance, regional reserve pooling arrangements, and preemptive financing for countries; and

• Exploring the future challenges for crisis prevention and the role therein for the IMF.

There was general agreement that minimizing vulnerabilities arising from currency and maturity mismatches in the balance sheets of various sectors of the economy was crucial to reducing the probability of a crisis. Speakers highlighted the difficulties that large and volatile capital inflows present for conducting monetary and exchange rate policies. They also emphasized the necessity of complementing appropriate macroeconomic policies with prudential supervision and regulation of the financial system, so that capital flows are allocated appropriately without generating undue vulnerabilities.

Participants discussed the role of a high level of reserves in providing self-insurance in the context of an open capital account, and how a new high-access line of credit to emerging markets that have strong macroeconomic policies but remain vulnerable to shocks—a proposal currently being discussed at the IMF—could complement to a country's own reserves. In this context, Mr. Kato told the seminar:

"Several IMF members—including those from emerging markets—have asked the Fund to create such a financial instrument that meets their need for predictability and flexibility. In response to such requests, we have proposed to our Executive Board a new instrument that provides a high-access line of credit to emerging markets that have strong macroeconomic policies but which remain vulnerable to shocks. This instrument would provide a liquidity cushion for our members and would be designed to help them avoid crises and respond to them if and when they do occur."

On future challenges, there was broad consensus among participants about the importance of a gradual unwinding of current global imbalances, and the need to be vigilant about the rapid financial innovation taking place all over the world.

The seminar is one of a number of events organized by the IMF to engage in dialogue with its 184 country members on aspects the Fund's Medium-Term Strategy (MTS). Twenty-first century globalization is presenting the global community with new challenges, and the IMF has an important role in fostering international cooperation and helping individual countries to meet these challenges. To this end, IMF Managing Director Rodrigo de Rato launched the MTS as a review of the IMF's role. The MTS received the endorsement of the IMF membership at the April 2006 meeting of the International Monetary and Financial Committee (IMFC).

The seminar was led by the IMF-Singapore Regional Training Institute (STI), which is a joint venture of the International Monetary Fund and the Government of Singapore. Located in Singapore, the STI began operations in 1998 and provides economic analysis and policy training for officials from the Asia-Pacific region.