Stability and growth pact With the regard to the Stability and Growth Pact, it is assumed that automatic stabilisation mechanisms shall function smoothly within the 3% GDP scale. This threshold could be exceeded only in case of an abrupt or unexpected shock situation. Additionally, the Stability and Growth Pact aims at a balanced budget during the economic cycle. Thus it presumes that one should not look for structural reasons if some member state experiences a long-term budget deficit or surplus. In my opinion, the Stability and Growth Pact has performed its function very well in recent years. This is proved by the fact that most of the EU member states now have a much stronger fiscal position than in previous years. Any major changes in the Stability and Growth Pact are likely to cause additional insecurity and significantly affect the credibility of the entire framework. Therefore I believe that the Stability and Growth Pact should remain a cornerstone of the EU economic policy also in the years to come. Further convergence of markets and various national economies should by itself prop the framework of the Stability and Growth Pact. In addition to the potential approximation of the business cycles, the  6  BIS Review 51/2002  common market should create preconditions enabling each country to invest its savings effectively within the Union. And even more importantly, harmonised and flexible commodity markets will help to reduce adjustment costs - and thus minimise the need to use budget stabilisation mechanisms during the short-term adjustment period.

Vittorio Corbo: The Fund’s medium-term strategy – a view from Latin America and a dialogue with high-level officials Keynote speech by Mr Vittorio Corbo, Governor of the Central Bank of Chile, at the High-level Seminar “The Fund’s Medium-Term Strategy: Considerations for a New Liquidity Instrument for Crisis Prevention and Effective Surveillance. Dialogue with High-Level Officials”, organized by the International Monetary Fund and the Central Bank of Chile, Santiago, 11 December 2006. *  *  *  Latin America has benefited substantially from the fast growth experienced by the global economy during the last four years and from domestic policies that have contributed to enhanced macroeconomic stability. External current accounts and primary fiscal balances are in surplus, exchange rates are more flexible, and inflation is no longer a major issue as it was for several years and after surpassing the average of 400 percent per year during the 1990s. Likewise, the structure of public debt has become less vulnerable, characterized by lower shares of short-term and foreigncurrency debt in most countries as compared with the early 2000s. At the same time, there is renewed appreciation in the region that a solid commitment to maintaining macroeconomic stability is a necessary condition to achieve high and sustainable growth rates in the medium term. A distinguished feature of the region is that fiscal revenues are highly dependent on natural resources. In the current favorable context for commodity prices, primary fiscal surpluses have clearly shown positive numbers, averaging around 4 percent of GDP of the region.