Basiléia, 24 de junho de 2018.
Apontamentos do presidente do Banco Central, Ilan Goldfajn
BIS Annual Meeting
Per Jacobsson Lecture and AGM Panel Discussion
BIS Annual Meeting Sunday 24 June 2018
Per Jacobsson Lecture
and
AGM Panel Discussion
Per Jacobsson Lecture Chairman: Guillermo Ortiz Chairman, Per Jacobsson Foundation and BTG Pactual, Mexico Lecturer: Ben S. Bernanke, Distinguished Fellow in Residence - The Brookings Institution Paper: The Real Effects of Disrupted Credit: Evidence from the Global Financial Crisis Abstract: How do financial crises affect credit flows and, more importantly, real economic activity? The Global Financial Crisis and the ensuing deep recession have spurred an outpouring of research on these questions. In this lecture, Mr. Bernanke will review the recent research and present new evidence on the macroeconomic impact of the crisis in the United States.
AGM Panel Discussion Chairman: Agustín Carstens, BIS General Manager. Panelists: Ilan Goldfajn, Governor of the Central Bank of Brazil, Ignazio Visco, Governor of the Bank of Italy, and Haruhiko Kuroda, Governor of the Bank of Japan.
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Greetings Dear Mr. Ortiz, Mr. Bernake, Mr. Carstens, Governors Kuroda and Visco, good afternoon!
Introduction I would like to observe that there were three distinct phases after the Great Financial Crisis (GFC) for emerging market economies (EMEs). 1. The first phase was the GFC shock and its impact on the global economy. Propagation to EMEs operated mainly through international financial linkages (liquidity squeeze, credit markets dysfunctional etc.). 2. The second phase were the policy responses to the GFC in Advanced Economies (AEs) that provided the international monetary system with liquidity. These responses benefited EMEs. This was particularly helpful for the countries that were able to take advantage of this favorable environment to promote growth but at the same time wisely implemented structural and institutional improvements to get prepared for the unwinding process. 3. Finally, the end of the long liquidity cycle. International liquidity is adjusting to the normalization process that is underway. The recent events have proved to be challenging for emerging countries. The continuity of structural and institutional reforms aiming at reducing external vulnerabilities and reinforcing macro and microeconomic fundamentals should be a priority for the EMEs.
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1. Emerging economies growth dynamics in the aftermath of the GFC: The role of the propagation channels of the financial system
When the crisis intensified in mid-2008, there was a perception that there would be a decoupling of economic activity between AEs and EMEs and that the latter could escape more or less unharmed. However, over time, the evidence suggests that, on impact, the crisis hit AEs and EMEs both hard. The aftermath of the global financial crisis was marked by a long period of low growth in AEs with important repercussions to both developed and emerging countries. While the average economic growth in advanced countries decreased 6.1 percentage points, from 2.7% in 2007 to -3.4% in 2009, the decrease in GDP growth among emerging market and developing economies reached 5.7 percentage points during the same period, from 8.5% in 2007 to 2.8% in 2009, according to IMF data. Moreover, countries rebounded in the aftermath mostly according to how deep their collapse had been. The positive numbers for EMEs reflect their higher underlying growth rates.
Real GDP growth
% 10 8,5 8
6
4 2,7 2 2,8
0
-2
-4 -3,4
2004 2007 2000 2001 2002 2003 2005 2006 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
AEs EMEs and developing economies World
Therefore, growth analysis points out to a deep fall followed by sharp recovery, but at very low rates in AEs and with heterogeneous dynamics in the case of EMEs. For instance, developing Asian countries such as India and China performed better than countries from the Western hemisphere. What explains the diverse pattern of growth across EMEs in the aftermath of the crisis are differences in economic fundamentals,
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the intensity of the transmission channels (trade and financial linkages) and the policy responses. An extensive literature aiming at understanding the implications of the financial crisis for growth dynamics in EMEs has been developed during the nearly 10 years after the Lehman Brothers episode. Such works have assessed the role of different channels in the propagation of the initial effects and of the following developments of the financial crisis. The outbreak of the financial crisis spurred a sharp decrease in international liquidity that triggered capital sudden stops to EMEs. The literature1 points out two main channels of contagious, with the importance of each channel varying according to individual characteristics of each country: disruptions of AEs credit market reached EMEs through financial linkages; and the severe downturn in AEs propagated to EMEs through trade channels despite currency devaluations. The importance of the international financial linkages that operated through the banking system had an unequivocal role for all EMEs. These channels transmitted the liquidity squeeze, turned credit market dysfunctional and disrupted international bank lending. EMEs were hit by a credit crunch driven by a severe restriction of cross- border bank lending. Demand for bank lending also declined, but to a much less extent.2 Credit growth
30
20
)
YoY % ( % 10
0
jan-04 jan-11 jan-03 jan-05 jan-06 jan-07 jan-08 jan-09 jan-10 jan-12 jan-13 jan-14 jan-15 jan-16 jan-17 AEs EMEs and developing economies
1 Ozkan and Unsal (2012), Global Financial Crisis, Financial Contagion and Emerging Markets. IMF WP/12/293. 2 Was it credit supply? Cross-border bank lending to emerging market economies during the financial Crisis. BIS Quartely Review, June 2010
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In spite of the prompt and strong recovery of EMEs growth, the effects of financial contagious of the GFC went beyond the first round impacts. At the end of 2011, deterioration of credit condition in Europe reactivated spillover effects for EMEs. The European Central Bank (ECB) liquidity support worked to attenuate risk of disorderly European banks deleveraging, however, it deteriorated credit conditions across Europe and imposed tighter credit conditions to EMEs since the third quarter of 2011.3
After the initial effects of the GFC, it followed the advent of the interest rate lower bound, the real consequences of the crisis and the threat of deflation leading to the deployment of unconventional policies responses by AEs. The ensuing financial cycles resulted in large and prolonged waves of capital inflows to EMEs during these past years.
Liquidity period. The period of abundant international liquidity has benefitted the EMEs, and the countries that took advantage of this favorable environment were able to promote fundamental economic changes. Several infrastructure projects were undertaken in EMEs,4 but more than that, EMEs made use of the international financial slack to increase their buffers to deal with external shocks.5
Total portfolio inflows into EMEs
200
150
100 US$ Billion US$ 50
0
-50
jul-09 jul-14
set-08 set-13
jan-12 jan-17
fev-09 fev-14
jun-07 jun-12 jun-17
abr-18 abr-08 abr-13
out-10 out-15
dez-09 dez-14
ago-11 ago-16
nov-07 nov-12 nov-17
mai-10 mai-15
mar-11 mar-16 EMEs: Brazil, South Africa, South Korea, United Arab Emirates, India, Indonesia, Pakistan, Thailand, Turkey, Vietnan
3 Feyen, Kibuunka and Otker-Robe (2012). Bank Deleveraging: Causes, Channels, and Consequences for Emerging Market and Developing Countries. World Bank Policy Research Paper 6086, June 2012 4 Private Participation in Infrastructure (PPI) Annual Report, The World Bank, 2017, 2016, and PPI database. 5 Ben Bernanke, remarks at the Sandridge Lecture, Virginia Association of Economics, Richmond, Virginia, March 2005.
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2. What are the prospects on the way back to normal conditions of international liquidity?
The carefully communicated monetary policy normalization process, started last year by the Federal Reserve, has been quite beneficial to the world economy and to the EMEs in particular. The success of this strategy has been based on gradualism, transparency and good communication, providing international markets with necessary information to well anticipate the course of policy. The focus has been on preserving the worldwide growth upswing and on providing the necessary predictability for financial market accommodation. The central banks of other AEs – as the ECB and the Bank of Japan – have also followed a precautionary path, avoiding an abrupt normalization of monetary conditions.
Emerging markets have been benefiting from this approach and, up to mid-April, have not been much affected by the monetary normalization. For instance, most EMEs experienced high capital inflows from 2010 to mid-2014 and, after a short period of reduction during 2016, it picked up pace again up to the first quarter of 2018. In addition, looking at the emerging market as a group, the exchange rate was relatively stable up to the first quarter of 2018.6 But, policy makers in some emerging countries, as illustrated by the BCB monetary policy minutes,7 had it clear that this benign environment should be not taken as permanent and that they should work to reduce domestic vulnerabilities of their own economies.
As anticipated, the external scenario has recently become more challenging and volatile to EMEs. The recent evolution of risks is associated with three external factors: (i) the normalization of monetary conditions in some AEs; (ii) investors relocating portfolio out of EMEs; and (iii) trade wars and geopolitical risks.
These shocks are affecting each country according to their own idiosyncratic conditions. Internal issues, such as strength of balance of payments, low initial inflation, the need to continue with reforms and adjustments, and electoral uncertainties affect the impact of the global shock.
I would like to observe that – even though the unwinding policy has been quite transparent and well communicated – there are challenges.
6 The EM currency Index JP have shown a clear depreciation trend since mid-April, while the USD index has appreciated. 7 http://www.bcb.gov.br/?MINUTES
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Therefore, as I have mention in several opportunities, the continuation of reforms and adjustments aiming at reducing external vulnerabilities and reinforcing macroeconomic fundamentals should be a priority for the EMEs.
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