mercedes marco del pont : the certainties and uncertainties in the world economy speech by ms mercedes marco del pont, governor of the central bank of argentina, at the money and banking conference 2010, central bank of argentina, buenos aires, 2 september 2010. * * * this 2010 conference is very special to all argentineans because this year is our country ’ s bicentennial and the 75th anniversary of the central bank. we are celebrating this money conference in the framework of a world economy with abundant uncertainties. during the early morning session, the possibility of developed countries entering a final, sustainable and balanced growth phase was discussed. there is also uncertainty as to what is going to happen to the weakest european economies that are implementing the fiscal consolidation and adjustment programs imposed on them to settle their debt issues, which most of us think will probably stress europe ’ s current structural issues. there is also uncertainty in the international financial regulation arena and its new engineering. after the onset of the crisis when rock bottom was hit, there were some signs of a possible exit to the crisis with the emergence of positive indicators in a number of developed economies ; now the most critical positions concerning a substantial reform of the international financial architecture are starting to fade away. the idea of making changes so that everything at the structural level remains the same seems to be consolidating. there are many more uncertainties that could be discussed, but i would rather speak to you today about some certainties we have in developing countries, especially in argentina. we have one clear certainty : for the first time in our short - and long - term history, countries in the region, in general, and argentina, in particular, are going through this global crisis – one of most severe since the great depression – with very low economic and social costs, without having faced a cyclical and structural external sector crisis or been immersed in recession crises leading to job and wealth destruction. in fact, it was quite the opposite : as we faced this crisis, activity levels were preserved, macroeconomic imbalances, avoided and, at the same time, income levels were intended to be distributed, both in argentina and in many countries in the region. this is not by chance. it is the result of our countries ’ consistent economic models, which gave up old conventional theories that furthered our nations ’ underdevelopment, and drove attention back to domestic market growth supported by wage corrections and redistribution policies, where public investment acts as a source of wealth and social inclusion

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 this type of economies, 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 manouver can be limited. when designing monetary policy, it is important to take the fiscal, financial and external conditions into account. an autistic monetary regime that dodges these issues, at the risk of becoming an additional source of uncertainty, would be of no use. in sargent ’ s words, there is no robust monetary regime for an inconsistent fiscal policy. our twentieth century history says a lot about the close link between the lack of fiscal solvency and inflation. even though in recent years the restriction has eased thanks to the surplus public accounts, the literature on fiscal dominance problems is not limited to the current period. it is well known that tax revenue structure depends on the current relative price structure – hence the need to address the question under a general equilibrium approach. similarly, doubts as to the financial system ’ s solvency or external sustainability can also limit monetary policy room for maneuver. as to external solvency, it would be wrong to tailor exchange rate policy to temporary trends : part of the current pressure for the appreciation of emerging currencies relates to commodity prices ( through the current account ) and the investors ’ risk appetite ( through the capital account ), which may clearly be temporary instead of permanent forces. further research in the economic literature has highlighted the difference in treatment according to whether the trend is caused by permanent or temporary factors. in a financial world characterized by capital flow volatility, a massive amount of capital may lead to some kind of “ dutch disease, ” with unsustainable paths and high real variable volatility. this kind of