In particular, a classical Latin American and Caribbean countries (LAC) crisis would show up as an unsustainable disequilibrium between public, private, or foreign savings and investment partially contained by some form of FX control, which turns into a major economic and financial crisis once the currency devaluates. Abundant foreign capital may help prolong the situation for a while, but only to make the inevitable turnaround more damaging. It is important to underscore the role of domestic ER policies. During the upswing, central banks in EMEs often try to curb the resulting appreciation, either through outright currency fixation of heavy FX market intervention. As a number of recent papers have found, these policies tend to reinforce capital flows. 1 When the tide turns, however, these rigid ER regimes are often accompanied by large devaluations, which contribute substantially to insolvency problems in both real and financial domestic sectors. Global financial conditions may thus influence the timing or even the intensity of a domesticallyinduced crisis, but they cannot suppress it altogether. Moreover, such favorable financial conditions usually hit back with a vengeance once local weaknesses reveal themselves. From here we can conclude that appropriate macro policies are necessary to prevent locally-induced cycles, even when powerful global financial forces are at play. The transmission of Global Financial Cycles to EMEs and the role of ER regimes 1  See Maurice Obstfeld, Jonathan D. Ostry, and Mahvash S. Qureshi (2018), “Global Financial Cycles and the Exchange Rate Regime: A Perspective from Emerging Markets,” Discussion Paper #12696, Centre for Economic Policy Research.

Governance structure and management model Now, let me turn to the Fund management model. The governance structure is based on a clear division of responsibilities between the political authorities and the operational management. •  The Ministry of Finance is the owner of the Fund. The Ministry defines the mandate and monitors and evaluates performance. •  The management of the Fund is delegated to Norges Bank. The Bank’s task is to implement the investment strategy and exercise ownership rights. Norges Bank also provides professional advice to the Ministry on investment strategies. The Fund’s investment strategy is to maximise financial return with moderate risk. The longterm strategic allocation is defined in terms of a benchmark portfolio, which consists of equities and fixed income instruments. Equities account for 60 per cent of the Fund's strategic benchmark portfolio. The size of the Fund implies that it currently owns about 1 per cent of listed European equities and ½ per cent of listed equities on a global basis. Fixed income instruments account for 40 per cent. 2  BIS Review 81/2008  Furthermore, the Ministry has recently decided that the Fund should prepare the ground for investing in real estate at 5 per cent of the strategic benchmark portfolio. In time, this will reduce the fixed income share to 35 per cent. Norges Bank has built an organisation with emphasis on investment returns and based on three fundamental principles: Accountability, transparency and professional standards.