samchain/econo-pairs-v1 huggingface dataset:
Heng Swee Keat: The next stage – policy challenges in Asia Keynote address by Mr Heng Swee Keat, Managing Director of the Monetary Authority of Singapore, at the Paris Europlace International Financial Forum, Singapore, 26 October 2009. *  *  *  Governor Noyer, Your Excellencies, Ladies and gentlemen, Good morning It gives me great pleasure to join you today at this Paris Europlace International Financial Forum. Let me warmly welcome Governor Noyer and our overseas visitors to Singapore, and welcome Mr Bresson and your team for holding this Forum in Singapore. Policy challenges ahead A year ago, the global financial community was grappling with a severe crisis that hit every part of the globe and every sector. We were on the edge of an abyss. The timely and forceful action by authorities, including the use of unconventional monetary policy tools, helped avert the worst. In recent months, the global economy and financial markets are showing signs of stabilization. Though we are yet to see a firm or sustainable rebound in final demand, there is a sense of relief, even optimism. Now, what’s next? What will be the shape of the recovery, and what policy actions are appropriate? It is difficult enough to make policy judgments in normal cyclical downturns. It is even harder now that this downturn is not a garden variety recession.

The impact of a financial crisis emanating from the largest economy in the world that also serves as the world’s economic locomotive and provides the global reserve currency is likely to be pervasive and longer-lasting. There are no easy precedents, and we have to remain alert to new surprises. Moreover, the key pillars of economic theories that underpin much of our policy thinking are now being vigorously questioned. We need much more thinking and empirical work on how economies and people behave to draw out the critical lessons from this crisis. But based on what we know, we need to undertake policy changes to build a more stable, sustainable and resilient global economic and financial system. Much of this has to be globally coordinated, given the extensive linkages among economies and the financial system. In Asia, we face many policy challenges, and I will touch on three of these: managing the recovery, economic restructuring, and the regulation and development of the financial services sector. My main theme is that we must be cognizant that many Asian economies enter this crisis with different starting conditions, and going forward, face different challenges from those in advanced economies. Understanding these differences, and avoiding a onesize-fits-all approach, will be critical to the design of policies appropriate to each country and region. Managing the economic recovery First, the economy. The financial crisis hit Asia with unexpected speed and force.
Instead, government budgets should be brought into balance and regulations hampering economic activity should be removed. In Hayek’s view, this would over time provide the basis for healthy, self-driven economic growth, even if the measures taken might deepen the crisis in the short term. Keynes won the public debate in the 1930s. His views influenced economic policy in the West, particularly in the post-war years. However, Keynesian policies would later prove to have their weaknesses too. Deeper causes Major crises are usually the result of a series of unfortunate events that occur in close proximity in time. A triggering factor can often be identified. But there is often an equally  BIS central bankers’ speeches  1  important and deeper underlying cause. If this is overlooked or not dealt with, the road out of the crisis may be long. Let me give an example from Norwegian economic history: 1 The oil price shock in 1973 and 1974 led to a recession in western economies – the worst recession since the Second World War. The Norwegian economy was also affected. At the same time, the Norwegian oil age had just begun. With prospects of high future income, the authorities responded with an expansionary countercyclical policy with large fiscal deficits. Targeted measures were also implemented to help manufacturing through the most difficult period. Manufacturing firms operating at a loss received funding support to cover hourly wage costs and support for production for inventory. The aim was to curb the crisis. But the diagnosis was wrong.

For instance, a large proportion of new  2  BIS central bankers’ speeches  mortgages granted for owner-occupied residential property still have a loan-to-value ratio of over 80%. Furthermore, the share of new loans with stretched affordability has also remained at a high level. At the same time, the interest rate margin of domestically focused banks narrowed further in 2012, while interest rate risk remained historically high. In view of the persistently low level of interest rates, there is the risk that, despite the measures already implemented, imbalances on the Swiss mortgage and real estate markets will continue to build up. This would increase both the likelihood and the consequences of a price correction in the medium term. Such a price correction could be triggered, for example, by a sharp increase in interest rates. Against this background, domestically focused banks should therefore continue to ensure that their resilience is sufficiently high, irrespective of the regulatory requirements, and make adjustments where necessary. They should be able to maintain their economically important functions, even if real estate prices were to fall sharply and interest rates were to simultaneously rise. In particular, domestically focused banks should make sure that the currently high direct interest rate risk is assessed and managed using conservative assumptions. In this context, the assumptions applied by banks with regard to savings and sight deposits are especially important. In an environment of historically low interest rates, these deposits have proven to be very stable sources of financing in recent years.
But while it is important to look at aggregates, it is also worth recalling that a very sharp correction in a relatively small asset class can have major repercussions: the stock of US subprime mortgage was only $ trillion in 2006, or 13% of the total stock of US mortgages. There are of course many differences between leveraged loans and associated CDOs and subprime.17 But, as the Financial Stability Board announced last week, it is now a priority for the international regulatory community to understand better how this market might behave under stress and who is holding the risk.18  The other striking development that I would note in the evolution of debt over the past 10 years has been in emerging markets, primarily China, rather than advanced economy debt. Emerging market debt now accounts for over a quarter of the global total compared to an eighth before the crisis. Within this, there has been a persistent buildup of private debt to record levels in China: excluding the financial sector, private debt has risen from 115% in 2008 to 203% of GDP. The majority of this increase occurred in the years after the financial crisis but Chinese private debt has continued to grow, by 30 percentage points of GDP, over the past 5 years, much of it intermediated through the less regulated shadow banking sector.19  The largest increases have been in the corporate sector, mainly in state owned enterprises, but more recently household debt has begun to grow quickly.

Within corporate debt, the proportion of leveraged lending and lower grade corporate bonds has risen rapidly in recent years, and in the UK and US there is a larger tail of highly indebted companies than there was before the crisis.13  Alongside this, protections for investors have been weakened materially. There has been an increase in borrower leverage, greater use of earnings add-backs and a relaxation of other investor protections like restrictions on collateral transfers. The share of ‘covenant-lite’ loans has reached record highs.14  Leveraged loans originate in the banking system. Much of the exposure, however, appears to have been passed on to market based investors, such as investment funds, insurance companies and pension funds either directly or in the form of collateralized loan obligations (CLOs). The growth of market-based finance has been one of the major changes of the post crisis financial landscape. Assets under management (AuM) globally now total $ trillion as opposed to $ trillion ten years ago. The growth in corporate borrowing over the same period has largely come through the market-based channel, rather than banks, as has the increase in net external borrowing by emerging markets. The development of market based finance in and of itself probably increases the resilience of the financial system by providing an alternative channel of credit.15  Its use of leverage is much less than the banking channel.
It’s easy to think of the Fed as just setting interest rates, and of course that’s a major part of what we do. But we do so in order to achieve two goals set by Congress: maximum employment and price stability. In Fed-speak it’s called the dual mandate. There are serious debates taking place amongst economists and policymakers about what maximum employment actually looks like, and they probably deserve another speech of their own. But I promised not to deluge you with numbers, so I’ll focus on a few highlights. The unemployment rate last year averaged just under 4 percent, the lowest such annual figure since 1969. The latest jobs numbers also showed very strong growth, with over 2.6 million jobs added last year. The ongoing strength in the labor market has led to encouraging gains in wages. No matter how you cut it, the labor market is strong, consistent with our maximum employment goal. When we say price stability, our goal is to keep inflation around 2 percent.1 Those of you who are of my generation will remember the runaway inflation of the 1970s and early 1980s. Obviously that’s something we must avoid repeating. But the challenge of more recent years actually hasn’t been too high inflation. Instead, it’s been inflation that’s persistently too low. Over the past decade, inflation has more often than not come in below our goal. But things are looking better.

Given the strong feedback loop between the overall economy and the financial sector, regulation can’t be the ‘only game in town’ to maintain financial stability. Equally critical are economic and structural reforms that are essential for a stable macroeconomic environment where financial sector can flourish. Towards that end, we, as central bankers, must continue to provide sound policy advice to our governments, supporting them in better addressing the challenges that our economies face, as only broader economic stability would ensure financial soundness and cement the gains of our regulatory reforms. Thank you for your attention. 7/12/2016  5
Indeed, the proportion of housing loans as a percentage of total loans in the euro area increased from around 50% in 1990 to more than 70% today, which is a type of lending that tends to be associated with lower growth.2 Structurally, a smaller banking sector could – at least in theory – help to avoid those negative effects on growth and insulate the euro area from some of these risks. Still, a smaller or downsized banking sector is no guarantee for lower overall risk. The business models, risk attitudes and profitability of the banks need to be taken into account as well. Likewise does geographical expansion into foreign markets when it is not accompanied by local knowledge. Another aspect is that a downsized banking sector provides impetus for capital market development in Europe – after all, if savings are not being intermediated through banks, they must be being intermediated through capital markets. I see this as central to a more balanced and contested financing mix in the euro area. Contrary to the trend in most advanced economies, the relative importance of bank versus non-bank financing in the euro area has actually increased in the last two decades – from already high levels – and this may have given banks excessive market power.

There are two reasons for this. First, bank lending to SMEs is concentrated in a handful of large banks as only they have the capacity to diversify idiosyncratic risks by lending to a broad enough range of firms. The three biggest originators in each euro area country represent on average 80% of the outstanding amount of the SME loans. This makes SMEs particularly vulnerable to any shocks to the banking sector and reduces their ability to switch between banks. 7  At present, the legal position that an account holder “owns” as soon as securities are booked to his account differs across euro area countries: in some jurisdictions the holder enjoys full and unshared property rights, whereas in others the holder receives a position that is in comparison “inferior”, i.e. a shared or indirect property interest or a mere claim against the account provider. 8  For more details see Special Feature C, “Initiatives to promote capital market integration in European bond and equity markets”, in ECB report on Financial Integration in Europe, April 2014. BIS central bankers’ speeches  5  Second, as smaller firms tend to be less transparent than larger firms, it is more costly for investors to obtain adequate information. This makes it harder for SMEs to substitute capital market finance for bank finance if the latter dries up. This is far from a trivial issue. The ability of SMEs to consistently access finance has vital macroeconomic importance for Europe.
Sebastián Claro: Chinese challenges facing Chile and Latin America Speech by Mr Sebastián Claro, Board Member of the Central Bank of Chile, at the 2012 Latin American Cities Conferences “Chile on the path to development”, organized by the Americas Society/Council of the Americas, Santiago, 30 August 2012. *  *  *  I would like to thank Consuelo Edwards and Yan Carrière-Swallow for their help in translating this speech from the original Spanish. Thank you for inviting me to this event that for several years now has been gradually positioning itself – both in Chile and in the rest of Latin America – as a seminar dealing with key issues for the region’s economic development. On this occasion, and at the organizers’ suggestion, I would like to share with you some thoughts on the economic development of China and its implications for Latin America. Rather than focusing on aspects of the Chinese economy – which I will come back to at the end of the presentation –, I would like to focus on those dimensions in which China’s spectacular growth affects the region directly. Let me begin by recalling a widespread debate in the region in the early 2000s. While Europe was boastfully launching its new single currency, Latin America was struggling to leave behind the havoc of successive crises that had hit the region, starting with Mexico in 1994.

This boost, which allowed the Chinese economy to deal quite successfully with the global financial crisis, brought about significant indebtedness of local governments, high exposure of the financial system to projects of dubious quality, and substantial over-investment. The need to put a stop to this impulse in order to safeguard macroeconomic stability has defined China’s economic policy decisions since 2010. Accordingly, the contractions in investment projects and credit availability have been the main stabilization tools used in China. However, this process coincided with the aggravation of problems in Europe, which resulted in a very sharp reduction of external demand for the Chinese economy, among other things. The fall in exports, together with the need to withdraw the stimulus that had been given to investment over the past few years, has put significant pressure on China’s growth. Its capacity to offset the drop in demand with increased domestic consumption is limited in the short run, especially since the necessary conditions to promote lower savings rates, such as changes to social security and health-care plans, a deepening of the household credit market, and changes in relative prices – such as a real exchange rate appreciation –, are often slow to implement. Until now the Chinese economy has continued to decelerate, and somewhat more rapidly than was foreseen a few quarters ago. In my view, China has the necessary tools to deal with this deceleration, and to deal with a possible worsening of problems in Europe.
All VSEs will be welcome, including, of course, those whose business is expanding and who need information tailored to their size. The Banque de France shall guarantee complete privacy in these dealings – indeed this is one of its fundamental values and skills: VSEs will have the peace of mind of knowing that, if they so wish, all discussions will be fully confidential. The VSE Correspondents will be appointed in the spring of 2016 and, after a period of specific training, will be fully operational by the autumn. Also in the autumn of 2016, the Banque de France will provide firms with access to an online analysis and simulation tool called OPALE, which enables companies to assess their finances while also learning more about the subject. 1  Evaluation de la mise en oeuvre des 5 mesures prises par la FBF pour améliorer les relations banquesTPE/PME, report submitted on 25 November 2015. BIS central bankers’ speeches  3  3) I’d like to turn now to my last suggested focus for action, which I believe is also extremely important: reducing the amount of time it takes for business customers to settle their invoices. Again it is difficult to provide accurate measurements – and at the Banque de France we are well aware of this as we have been helping to look into the issue for several years.

This step followed a series of interest rate increases implemented since November 1999. The Governing Council will continue to remain alert to emerging risks to price stability. It is a matter of fact that recent oil price increases have caused the terms of trade of the euro area to deteriorate, and thus have also reduced real income. This loss of real income cannot be avoided for the economy as a whole. Attempts to shift the burden of this loss within the economy will risk endangering the continuation of a non-inflationary growth process. For the maintenance of price stability, it will be particularly important, in the current phase of strengthening economic growth, that wages continue, on average, to grow at rates compatible with the objective of price stability. Any attempt for wages to catch up in reaction to recent oil price increases would be highly detrimental to the current favourable growth prospects, since monetary policy would need to react to the resulting upward pressure on prices. Governments also have to play a role in order not to convey the false impression that the costs stemming from the increase in oil prices could be avoided by relaxing budgetary policies. This would not be in line with the needs of establishing budget positions in balance or in surplus and would complicate the fostering of tax reforms conducive to a stronger growth potential of the euro area.
8  The estimated simple gravity equation is lncij=4+0.9lnGDPi+0.8GDPj-1.4lndistij, where lncij is the log of consolidated claims of country i’s banks in country j, lnGDPi and lnGDPj are the logs of GDP in countries i and j, respectively, and lndistij is the log of the greater circle distance between the capital cities of country i and j. All estimated coefficients are statistically significant at the 1 per cent level. The country sample includes all EU countries for which data on foreign claims by nationality of reporting banks, immediate borrower basis, at the end of September 2009, is available from the Bank for International Settlements. Data on GDP in 2009 have been collected from the International Monetary Fund’s World Economic Outlook Database, April 2010. Data on greater circle distance have been collected from www.distancefromto.net. 16  BIS Review 82/2010  Bulgaria and Romania belongs to Greek banks, a large share of the foreign banking assets in the Czech Republic, Hungary and Slovakia belongs to Austrian banks, a large share of the foreign banking assets in Poland belongs to German banks, and a large share of the foreign banking assets in Estonia, Latvia and Lithuania belongs to Swedish banks. 9 One reason why cross-border banking is especially widespread in Europe is the efforts that have been made to achieve the long-term goal of creating a single market for financial services. In the early 1990s, a number of legislative reforms aiming to liberalise the financial sector were introduced.

Everything that I have mentioned about digital infrastructure and connectivity is well within the capacity of Africa to achieve. In fact, you have a unique opportunity to leapfrog legacy systems and vested interests, and build a modern digital economy and society, from the ground up on a clean slate. This room is filled with innovators, investors, business leaders, and policy makers from around the continent. Together, you can shape a future where technology and finance  2/3  BIS - Central bankers' speeches  converge to create a more prosperous, vibrant, and inclusive Africa. Thank you. 3/3  BIS - Central bankers' speeches
1  For example, the IMF’s Regional Economic Outlook for Asia and Pacific region (April 2013) highlighted that a number of emerging Asian economies could run the risk of a sustained growth slowdown of the so-called the “middle-income trap” phenomenon. 2  BIS central bankers’ speeches  Due to the long-term nature of structural readjustments, continuity of policy implementation is required for the policy measures to take meaningful effect on the economy. Consistency both over time and across the broad spectrum of macroeconomic policies, guided by the overriding economic reform agenda, is needed to reach an optimal outcome at minimum cost. And precisely because of all the challenge and difficulty in searching for the right direction for the economy and making it happen, a visionary leadership is vital for successful structural transformation. Clear and far-sighted vision for the economy, the ability to maintain coherency between strategic ideas and short-term actions, and the ability to bridge differences and cultivate shared beliefs are but some of the important characteristics needed for policymakers to deliver changes. These three principles – visionary leadership, consistency, and continuity – should be at the root of the national economic policy formulation and implementation to ensure quality public policy that can enhance the country’s competitiveness and sustain long-term growth. Realizing potentials of regional integration Ladies and gentlemen, Implementing reform through domestic policy alone is likely to be a daunting task, but fortunately Asian economies can leverage on the vast opportunities offered by the regional economic network.

In these uncertain times and with all the increased interconnectedness of the world economy, volatility and short-term fickleness of marketplace are unavoidable. The wise thing to do is to understand the nature of this global interconnectedness, enhance risk management at both the macro and micro levels to mitigate negative impact that it may bring upon, all the while maximizing opportunities that it can immensely provide. It is conceivable that, in this highly integrated world, information and confidence are very important in influencing actions. Just as how “shifts in beliefs” can go a long way to create extreme market reactions and volatility, on a positive side I trust that a successful “anchoring of confidence” in our “shared beliefs” of ASEAN’s strength and future will encourage actions and commitments that will bring sustained prosperity for all. Thank you. And happy birthday to The Nation. 4  BIS central bankers’ speeches