Dollars, Debt, and Deficits Sixty Years after Bretton Woods Conference Proceedings Banco de España International Monetary Fund ©International Monetary Fund. Not for Redistribution © 2005 International Monetary Fund Production: IMF Multimedia Services Division Cover: Jorge Salazar Dollars, debt and deficits : sixty years after Bretton Woods : conference proceedings - [Washington, D.C.] : International Monetary Fund : Banco de España, [2005] p. cm. Organized by Banco de España and the International Monetary Fund. ISBN 1-58906-453-4 1. International finance — Congresses. 2. Dollar — Congresses. 3. Debt — Congresses. 4. Foreign exchange rates —Congresses. 5. International Monetary Fund Congresses. I. International Monetary Fund. II Banco de España. HG3881.D67 2005 Price: US$35 Please send orders to: International Monetary Fund Publication Services 700 19th Street, N.W., Washington, D.C. 20431, U.S.A. Tel: (202) 623-7430 Telefax: (202) 623-7201 E-mail: [email protected] Internet: http://www.imf.org recycled paper ©International Monetary Fund. Not for Redistribution Contents List of Participants v Foreword vii Rodrigo deRato and Jaime Caruana • INTRODUCTION 1 Raghuram Rajan and Jose Vinals • OPENING SPEECHES Rodrigo de Rato 11 Pedro Solbes 17 Jaime Caruana 21 • BLOCK I: GLOBAL IMBALANCES, EXCHANGE RATE ISSUES, AND DEBT Session 1; Global Imbalances A Map to the Revised Bretton Woods End Game: Direct Investment, Rising Real Wages, and the Absorption of Excess Labor in the Periphery 29 Michael P. Dooley, David Folkerts-Landau, and Peter Garber Macroeconomic Dynamics and the Accumulation of Net Foreign Liabilities in the US: An Empirical Model 47 Giancarlo Corsetti and Panagiotis Th. Konstantinou Session 2; Exchange Rate Issues Financial Globalization and Exchange Rates 93 Philip R. Lane and Gian Maria Milesi-Ferretti What Makes Balance Sheets Effects Detrimental for the Country Risk Premium? 135 Juan Carlos Berganza and Alicia Garcia Herrero Session 3; Debt in Emerging Economies Public Debt, Fiscal Solvency, and Macroeconomic Uncertainty in Latin America: The Cases of Brazil, Colombia, Costa Rica and Mexico 165 Enrique G. Mendoza and Pedro Marcelo Oviedo Exchange Rate Regimes and Debt Maturity Structure 197 Matthieu Bussière, Marcel Fratzscher, and Winfried Koeniger Contributions; Daniel Cohen (discussant) 213 Stanley Fischer (panelist) 215 Malcom Knight (panelist) 219 iii ©International Monetary Fund. Not for Redistribution • KEYNOTE SPEECHES Agustin Carstens 233 Jean-Claude Trichet 237 • BLOCK II: INTERNATIONAL FINANCIAL ARCHITECTURE Session 4; The Role of the IMF A Model of the IMF as a Coinsurance Arrangement 249 Ralph Chami, Sunil Sharma, and Ilhyock Shim The IMF in a World of Private Capital Markets 291 Barry Eichengreen, Kenneth Kletzer, and Ashoka Mody Session 5; Innovations in Private and Multilateral Lending Dollars, Debt, and the IFIs: Dedollarizing Multilateral Lending 325 Eduardo Leyy-Yeyati Optimal Collective Action Clause Thresholds 363 Andrew G. Haldane, Adrian Penalver, Victoria Saporta, and Hyun Song Shin Contributions; Lorenzo Bini-Smaghi (discussant) 383 John Murray (discussant) 3 87 Guillermo Ortiz (panelist) 391 IV ©International Monetary Fund. Not for Redistribution List of Participants Enrique Alberola, Unit Manager, Banco de Espaiia Juan Carlos Berganza, Economist, Banco de Espaiia Lorenzo Bini-Smaghi, Director General, Italian Ministry of Economy and Finance Jorge Blazquez, Advisor, Economic Office of the President of the Spanish Government Geoffrey H. Board, Board Chief Representative, Reserve Bank of Australia Jan Brockmeyer, Deputy Executive Director, De Nederlandsche Bank Ariel Buira, Director of the G-24 Secretariat Matthieu Bussiere, Senior Economist, European Central Bank William Calvo, Chief Economist, Banco Central de Costa Rica Jose Manuel Campa, Professor, IESE Agustin Carstens, Deputy Managing Director, International Monetary Fund Jaime Caruana, Governor, Banco de Espaiia Miguel de las Casas, Economist, Banco de Espaiia Michael Casey, Head of the Funds Supervision, Central Bank & Financial Services Authorities of Ireland Ralph Chami, Division Chief, International Monetary Fund Roberto Cippa, Director of International Monetary Relations, Swiss National Bank Kenneth Coates, Director, Centre for Latin American Monetary Studies Daniel Cohen, Professor, Ecole Normale Superieure Giancarlo Corsetti, Professor, European University Institute Daniel Daco, Head of Division, European Commission Thomas Dawson, Head of the External Relations Department, International Monetary Fund Guillermo de la Dehesa, Member of the Board, AVIV A Michael Dooley, Professor, University of California and Deutsche Bank Special Advisor Sonsoles Eirea, Economist, Banco de Espaiia Santiago Elorza, Technical Advisor, Spanish Ministry of Economy Yuchuan Feng, Deputy Governor's Assistant, People's Bank of China Roger Ferguson, Vice Chairman, Board of Governors of the Federal Reserve System Vicente Javier Fernandez, Advisor, Spanish Secretariat of State for the Economy Santiago Fernandez de Lis, Director of the International Economics and International Relations Department, Banco de Espaiia Inigo Fernandez de Mesa, Deputy Director General of EMU Affairs, Spanish Ministry of Economy and Finance Stanley Fischer, Member of the Board, Citigroup Inc. Allen Frankel, Head of the CGFS, Bank for International Settlements Marcel Fratzscher, Senior Economist, European Central Bank Luis de Fuentes, Deputy Director General, Spanish Ministry of Industry, Trade and Tourism Peter Garber, Global Strategist, Deutsche Bank Alicia Garcia Herrero, Head of Division, Banco de Espaiia Luis Garcia Lombardero, Advisor, Spanish Secretariat of State for the Economy Jose Garcia Solanes, Professor, University of Murcia Francisco Gismondi, Director of Macroeconomic Analysis, Banco Central de la Republica Argentina Giorgio Gomel, Director of International Affairs, Banca d'ltalia Jane Haltmaier, Division Chief, Board of Governors of the Federal Reserve System Herve Hannoun, Deputy Governor, Banque de France Claudio Irigoyen, Director of Monetary and Financial Policy, Banco Central de la Republica Argentina Zhongxia Jin, Director General of the International Department, People's Bank of China Alfred Kammer, Deputy Managing Director's Advisor, International Monetary Fund Kenneth Kletzer, Professor, University of California Malcolm Knight, General Manager, Bank for International Settlements Panagiotis Konstantinou, RTN Research Fellow at the University of Rome III Philip Lane, Director of the HIS, Trinity College Dublin and CEPR Nuno Leal de Faria, Deputy Director of the International Relations Department, Banco de Portugal V ©International Monetary Fund. Not for Redistribution Eduardo Levy Yeyati, Professor, University Torcuato Di Telia Ruogu Li, Deputy Governor, People's Bank of China Zhengming Liu, Chief Representative, People's Bank of China Representative Office in Frankfurt Jose Luis Malo de Molina, Director General of Economics, Statistics and Research, Banco de Espafia Luis Marti, Executive Director, International Monetary Fund Manuel Martinez, Economist, Banco de Espafia Aurelio Martinez Estevez, Professor, University of Valencia Jose R. Martinez Resano, Economist, Banco de Espafia Enrique Mendoza, Professor, University of Maryland Gian M. Milesi-Ferretti, Division Chief, International Monetary Fund Ashoka Mody, Division Chief, International Monetary Fund Joaquin Muns, Member of the Board, Banco de Espafia John Murray, Advisor, Bank of Canada Michael Mussa, Senior Fellow, Institute for International Economics Franz Nauschnigg, Head of Division, Oesterreichische National Bank Emilio Ontiveros, Member of the Board, API Guillermo Ortiz, Governor, Banco de Mexico Adrian Penalver, Economist, Bank of England Jose Perez, President, Intermoney Kristina Persson, Deputy Governor, Sveriges Risksbank Jean Pisani-Ferry, Professor, University of Paris-Dauphine Richard Portes, Professor, London Business School and CEPR Federico Prades, Advisor, AEB (Spanish Banking Association) Raghuram Raj an, Economic Counsellor and Director of Research, International Monetary Fund Rodrigo de Rato, Managing Director, International Monetary Fund Luis Ravina, Rector, University of Navarra Carmen Reinhart, Professor, University of Maryland Rafael Repullo, Director, CEMFI Jose Juan Ruiz, Head of Department, Santander Central Hispano Juan Ruiz, Economist, Banco de Espafia Sinikka Salo, Member of the Executive Board, Suomen Pankki Javier Santiso, Chief Economist for Latin America and Emerging Markets, BBVA Jesus Saurina, Head of Division, Banco de Espafia Miguel Savastano, Division Chief, International Monetary Fund Miguel Sebastian, Director of the Economic Office of the President of the Spanish Government Sunil Sharma, Division Chief, International Monetary Fund Pedro Solbes, Second Vice President of the Spanish Government and Minister for Economy and Finance Alberto Soler, Advisor, Spanish Ministry of Economy and Finance Michel Soudan, Assistant of the International Service, National Bank of Belgium Marc Olivier Strauss-Kahn, Director General, Banque de France Gyorgy Szapary, Vice President, Central Bank of Hungary David Taguas, Economist, BBVA Fernando Tejada, Head of Division, Banco de Espafia Panayotis Thomopoulos, Deputy Governor, Bank of Greece Jens Thorn sen, Member of the Board, Danmarks Nationalbank Jean-Claude Trichet, President, European Central Bank Juan Jose Toribio, Director, IESE Jose Uribe, Head of the Management Office, Banco de la Republica de Colombia Pierre Van der