line with the “ risk management ” approach. model - based rules should thus be an important supplement to the judgment based on the careful analysis of empirical evidence and data, but cannot be replaced by it. when designing and implementing monetary policy, it is necessary to take these considerations into account, as well as the characteristics of the local and international macroeconomic environment. otherwise, monetary policy will not only be inconsistent and lead nowhere, but also an additional source of uncertainty, as had been the case in our country many times before. one of the most distinctive features of aggregate operating dynamics in argentina has been the recurring macroeconomic instability episodes. it follows logically that, in the past 25 years, our economy has spent over a third of its time off the dynamic stability path ( defined as the range between two standard deviations of the long - term trend ), against australia ’ s 18 percent or brazil ’ s 25 percent. argentina shares its resources and position in the world with these countries, and it is expected to be somewhat symmetrical with them as regards the impact of external shocks. these phenomena have severely harmed long - term performance, and were not cost - free in terms of welfare : excessive volatility is probably the main reason for our country ’ s economic stagnation in the last three decades of the previous century. furthermore, the past quarter of a century was prolific in terms of the lessons learned from the crises of diverse origin and the consequences for the monetary and financial regime. we know that the channels through which excessive volatility affects economic performance are different. in argentina, we have undergone two type of crises : • crises arising from ex ante nominal volatility, characterized by a persistent noise in nominal signals to agents ( high inflation ), that lead to a shortening of the horizon, financial anemia, and the loss of value in money functions. • crises arising from nominal stability by rule ( such as convertibility ), which, although they induce an audacious behavior in agents and “ shortcuts ” to financial depth, cause mass defaults if the rule is not matched by consistent macroeconomic policies. in this type of economy, where society has developed a high risk aversion and the need to prevent a new crisis becomes a priority objective, macroeconomic policy coordination is critical. if there are doubts about the intertemporal solvency of any of the macroeconomic policy set, the conventional monetary policy room for maneuver can be limited. when designing monetary policy, it

##rrencies. this is reflected in a clear trend towards developing local assets ( mainly asia but also latin america ) and, consequently, in narrower spreads and stock markets hitting record highs – in short, it results in higher funding opportunities for the emerging world. such a process – which takes place gradually and is coupled with a transition towards a more diversified asset portfolio for central banks – offers great opportunities but also poses significant challenges for our countries, where financial development is incipient. although they exhibit advances, latin american countries appear to be lagging behind in terms of financial depth, not only compared to the developed countries but also when compared with other emerging economies like those in eastern asia. latin american countries exhibit a lesser relative degree of banking penetration. this situation reflects both supply issues and problems inherent to the demand side. these demand difficulties relate to a large degree of informality in corporate operations, or cultural issues which mean that at times the economic agents exclude themselves from this market on their own free will. bank loans to the private sector in latin america is typically below 30 % as fraction of gdp, while it is 175 % in uk, 167 in spain, and fluctuates closely to 100 % in france, japan, italy, canada, australia and germany. in emerging asia, where contract enforcement is probably better than in latin america, thailand´s ratio is 88 % and korea´s 100. the development of capital markets appears to be even more incipient. these markets are relatively illiquid, fragmented and incomplete, because the instruments that enable them to diversify ( or transfer ) risks are scarce, and, in particular, the capital markets are concentrated on government securities. indicators for 2004 show that while the turnover traded on the domestic capital markets was 6. 1 % of the gdp in latin america, it accounted for 92. 2 % in the g - 7 markets and for 104. 5 % in east asia. on the other hand, during that year equity financing was 0. 5 % of the gdp in the region, compared with 1. 5 % in the g - 7 countries and 5. 9 % in asia. between the years 1990 and 2004 latin america suffered a decline in the number of listed corporations which contrasts with the growth trend observed in the g - 7 countries and east asia. the domestic corporate bond markets exhibited a similar situation, as the amount of the bonds issued in 2004 was equivalent to 10. 7 % of the gdp in the latin american countries, compared with averages of 47.