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* Useful reference: IDB Macroeconomic Report 2011: One Region , Two Speeds PowerPoint Presentation
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New Policy Challenges for Macro and Financial Stability in LAC* Eduardo Fernández-Arias Research Department ( Personal views) G-20 Seminar on Monetary Policy and Macro-Prudential Regulation with High Level of Liquidity Rio de Janeiro, June 2011.

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New Policy Challenges for Macro and Financial Stability in LAC*Eduardo Fernández-AriasResearch Department(Personal views)G-20 Seminar on Monetary Policy and Macro-Prudential Regulation with High Level of Liquidity Rio de Janeiro, June 2011

*Useful reference: IDB MacroeconomicReport 2011: OneRegion, TwoSpeeds

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1. Temporary external shocks leading to surging capital inflows and high commodity prices urgently called for macroprudential policies to ensure financial stability in most LAC countries.

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2. LAC, especially in South America, is in fact making use of a vast array of macroprudential tools to ensure financial stability after the boom.

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3. Are LAC countries correct in using such a profuse arsenal of macroprudential tools of financial policy with the objective of financial stability, rather than relying on monetary policy?YES, but they all need to be coordinated by CB

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4. However, is financial stability the only objective of these financial policies?No. They often contribute to the overall countercyclical effort of smoothing the cycle.

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5. Financial policy contributes to overall countercyclical policy beyond basic financial stability in many important ways when monetary policy is insufficient

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6. How welcome should countercyclical financial policy in Emerging Economies (EE) be from a global, G20 viewpoint?There are tradeoffs
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7. If moderation in some EE countercyclical financial policies is called for to produce a globally efficient outcome, how can G20 cooperate to achieve it?Set up an insurance mechanism backed up by Advanced Economies (AE) in exchange for weaker countercyclical financial policies in EE.