economies the following years, with the mexican crisis of december 1994 being the first example. thereafter, a series of banking and balance of payments crisis followed in latin america and elsewhere3. the impact of the fed ’ s tightening cycle in the 1990s on emerging markets was not as widespread as the 1980s episode had been, and countries like chile and colombia were able to st 1 remarks at the 2017 iif latin america economic forum, asuncion, paraguay on saturday april 1, 2017. i acknowledge the support of diego gianelli and mauricio hitschfeld in the preparation of this speech. these remarks do not imply endorsement by the central bank of chile or any of its board members. 2 there is a third episode between june 1999 and june 2000. this process of 150 bp hikes can be understood as the final adjustment along the 1994 episode. 3 see, for example, the discussion in garcia ‐ herrero, a., 1997, banking crisis in latin america in the 1990s : lessons from argentina, paraguay and venezuela, imf working paper 97 / 140. see also sachs, j., a. tornell and a. velasco, 1996, financial crisis in emerging markets : the lessons from 1995, nber working paper 5576. weather this period relatively well and to keep high growth rates. 4 but there is ample evidence that, in a context of several macroeconomic imbalances in several emerging economies, the 1994 episode triggered a series of difficulties and crisis that configured the macroeconomic map in the developing world in the second half of the decade. in contrast, the monetary policy normalization process starting in 2004, did not have a negative effect on emerging economies. moreover, the 2004 ‐ 2007 period was one of prosperity and stability across the developing world. of course, the global financial crisis of 2008 derailed everything, but it is difficult to argue that it was the consequence of the hiking cycle of the mid 2000s. if anything, it might have been the consequence of the lack of a timely normalization. hence, although there are many common features in the 1994 and 2004 cycles, the consequences were very different. what i want to do in this talk is to identify a few features that help us reflect why this was the case. i think this is useful to extract some lessons for the current process of monetary policy normalization in the us. 1994 ‐ 2004 normalization cycles as a starting point, it is important to notice that the 1994 and 2004 episodes are comparable for

causing high prices of other commodities, such as foodstuffs. this is why chinese growth offers such enormous opportunities to countries with agricultural and agribusiness potential, such as chile. in turn, chile ’ s capacity to diversify its exports and avoid specializing in a handful of raw materials requires a substantial effort to promote competitiveness, which is the most critical tool to foster growth and diversification. support for and training of human capital, increased market competition and flexible labor markets all stand out as important measures to improve competitiveness. all these dimensions point to the fundamental source of productivity gains, which is the creation and development of new enterprises. international experience shows that countries ’ export growth is driven mainly by new firms – in existing product categories and to existing destinations – with a stronger capacity for growth than existing exporters. 7 as some authors have pointed out, taking advantage of this growth potential requires fostering factor mobility across firms of different productivity levels. this process generates a major portion of the gains from economic openness, such that policies that hinder workers crossing over to other firms or that raise the cost of adjusting the scale of production weaken capacity for innovation. 8 finally, and in the same token, it is clear that the opportunities that china ’ s strong growth generates for the region must be well used. for this to take place, not only will greater saving be required, but also more productive investment. in other words, one significant challenge facing the economies of the region – and chile in particular – is to take advantage of this momentary boom in the terms of trade by promoting saving and investment, thus making sure that it does not simply translate into an unsustainable spending spree. to that end, fiscal policy plays a key role by setting up well evaluated investment programs, while maintaining the incentives that promote the accumulation of scarce physical and human capital among private agents. policies that distort these incentives inevitable end up lowering the rate of saving and investment. see eaton, j., m. eslava, m. kugler and j. tybout ( 2008 ), “ the margins of entry into export markets : evidence from colombia, ” in e. helpman, d. marin, and t. verdier, eds., the organization of firms in a global economy, cambridge, ma : harvard university press ; and blum, b., s. claro and i. horstmann ( 2012 ), “ new exporter dynamics and capital adjustment costs, ” mi