Dr. Josef Ackermann

Rio de Janeiro, Brazil, March 6, 2008 — Good afternoon and welcome to the IIF's Spring Membership Meeting. We are delighted to be here in Rio and I want to thank you Roberto for your warm words of welcome and for the lead sponsorship of our meetings here by Bank Itaú - as you said, this is the first IIF major membership meeting in Latin America.

The rising importance of this region's leading business institutions -- including major banks, such as Itau -- and the visible commitment of major governments to sound economic policies, is encouraging. The actions of Brazil's Government to strengthen the investment climate, which you just noted Roberto, are noteworthy, especially at a time when strains are evident in the global economic environment.

It is fascinating to note that while the IIF has had crises in emerging markets so often at the forefront of its concerns over the last 25 years, today, due to the kinds of sound policies we have seen here in Brazil, many emerging market economies are strong, while the most serious current ailments are to be found in some of the world's leading industrial economies.

The global economic outlook is fraught with uncertainties, while certain components of the financial system continue to be under stress. The U.S. economic slow-down and the financial strains in global markets are having a significant impact on the world economy. However, it is quite probable that the resilience evident in emerging market economies will help to underpin broader global growth this year. The forces of globalization and the pursuit of sound economic policies by many emerging markets countries are seeing record levels of net private capital flowing to these countries now. Today, the IIF is releasing a new report that notes that a major rise in flows was seen in 2007 and that, even with a slowing global economy, the scale of capital likely to flow to emerging markets in 2008 will be formidable.

My colleagues Bill Rhodes and Francisco González will shortly discuss some of the key developments in the global economy. Before turning to them permit me to first address the critical issues facing the financial services community.

I want to underline my full agreement with the views recently expressed by the Financial Stability Forum that, "The most immediate task for market participants is to rebuild confidence in the creditworthiness and robustness of financial institutions. This is a necessary condition for the re-establishment of adequate market liquidity and credit intermediation."

As you know, many financial services firms are individually strengthening risk management approaches and addressing other pressing matters that have come to the fore in recent months. There is broad agreement, however, that these individual actions need to be complemented by industry-wide standards in order to facilitate the rebuilding of confidence.

Last October, at the IIF's Annual Membership Meeting, I announced that the IIF's Board of Directors was launching a special initiative to analyze the critical issues resulting from the sub-prime crisis, and to promote recommendations that can secure the support of the financial services industry to enhance best practices. We established a Special Committee on Market Best Practices, chaired by Rick Waugh, President and Chief Executive Officer of Scotiabank, and Cees Maas, former Vice Chairman and Chief Financial Officer of ING Group.

The Committee has made significant progress toward addressing important and complicated issues that relate to the key areas of risk management, liquidity, valuations, ratings, and transparency and disclosure. Senior officers and experts of member firms are devoting considerable time to working together on these issues. Our Committee is developing actionable recommendations that can contribute to the restoration of confidence.

In our discussions of risk management, for example, we are not only addressing technical improvements to processes, which are important. But, we are also considering ways to promote best practices that strengthen the interaction of risk management with overall executive management and business strategy. It is important that risk management be at the core of overall corporate culture to enable firms to better withstand the kinds of market stress that we are currently experiencing.

Then, we are seeking to ensure that a key lesson of recent experience in liquidity risk management and conduits is translated into practice - namely, that conduits and other vehicles need to be analyzed and understood rigorously by both sponsoring institutions and the institutions investing in their paper. Let me say that the IIF's report published last year on Principles of Liquidity Risk Management has held up very well and is most useful. We will amplify these recommendations where needed.

And, turning to valuation, we are recognizing the need to promote the strengthening of internal governance and to ensure a stronger framework around valuation processes that involve, for example, the integration of risk, finance and accounting policy inputs. We are also looking at the possible need for a broad review of accounting standards at the highest levels to ensure that they are consistent with sound finance.

We are formulating proposals aimed at strengthening transparency and disclosure and to build confidence as a result. Moreover, we are looking at the approaches of rating agencies and at the ways in which their contributions can be enhanced significantly. At the same time we are aware that it is necessary to consider ways in which compensation can be best geared to shareholder interests and long-term performance. We look forward to being able to report to you in more detail in each of these areas when our deliberations have reached a more advanced stage.

In addition, as we address the multiple dimensions of the current situation we are also looking ahead to possible approaches that can assist firms to better anticipate and head off crises in the future. We are exploring, for example, the establishment of a global capital markets monitoring group that could bring together a small number of market experts with some of the eminent luminaries of global finance. This initiative might be combined with public sector efforts to identify systemic risks as they emerge and avoid the kinds of pitfalls that have been so costly for the industry and the world economy.

As our Committee proceeds with its work, so we are also engaged in discussions with the regulatory authorities on the key issues. Let me emphasize that we recognize that the industry has a primary responsibility to address its own weaknesses and to rebuild confidence in the system.

Finally, on current conditions, it is important to underscore that certain aspects of the strains in the markets are being addressed by the central banks of the leading industrial economies. We are encouraged by the important coordinated actions that these central banks have taken since mid-December to provide liquidity to the banking system. And, we welcome the positive actions that they are implementing to mitigate the slowing of growth in their economies.

Now, let me turn to Bill Rhodes and then to Francisco González who will focus on global economic trends and the emerging markets.

Thank you.

Mr. William Rhodes

Good afternoon. First, let me echo Joe's comments on the complex global economic and financial situation that we face today, as well as the important emphasis that he has given to the progress being made by the IIF´s Committee on Market Best Practices.

I want to thank Roberto for taking the lead in hosting our meeting here and for his significant comments on the challenges that face the best performing economies of Latin America at this time. Two years ago, at the Inter-American Development Bank's annual meeting in Bello Horizonte, I stressed at an IIF press conference that there has been major progress in Brazil and in other countries in the region in putting in place macro-economic policies that can enjoy investor support. The achievements of the Brazilian Government are noteworthy, as are those of Brazilian business community and are reflected in the resilience of Brazil's economy. Its markets have also shown resilience in the face of the severe strains in the U.S. in recent times.

In Bello Horizonte, and on subsequent occasions at IIF press conferences, I highlighted the need for investors and lenders in emerging markets to be vigilant in their analysis of fundamentals and not to underestimate the increasing risks. I stressed that governments must also remain vigilant in pursuit of policies that reinforce investor confidence. I underscored these points and the prospects of a serious correction in the U.S. economy and in credit markets in an article published one year ago in The Financial Times. Today, I want to reiterate these important points.

We are witnessing a long overdue correction in asset prices that is reflecting more realistic differentiation by investors. This is based on the significant differences that exist in the health of various economies and the policies that governments are pursuing to secure non-inflationary growth. And we are now seeing a similar correction in other segments of financial markets. These corrections, in my opinion, are still far from complete.

The spillover effects on emerging markets, indeed on the global economy, of the U.S. economic slow-down, and the dislocations in important financial markets, may become more pronounced in the period ahead. The housing crisis in the U.S. is unfortunately still far from over. The deterioration in the financial condition of many American consumers, as reflected in their difficulties in meeting mortgage, auto-loan and credit card obligations, is also a cause for very serious concern.

I hope that the IIF´s U.S. growth forecasts are on target, but the risks as I see them are very much on the downside. This is not only because of U.S. developments, but also because of the range of uncertainties on the international economic landscape, from potential geopolitical developments that could, for example, push oil prices still higher, to further concerns in the financial sector.

It is important to recognize that the accelerating globalization of recent years, with spectacular rises in cross-border trade and investment, means that no single economy, however large, is immune from being effected by the strains that we are now witnessing, most notably in the United States. Indeed, we do not see decoupling today as an economic reality.

In this environment, the actions of the central banks and the finance ministries of the major economies have a system-wide effect. The monetary authorities now face the complicated challenge to balance the need for supporting demand in the face of tightening credit conditions, while being acutely sensitive to inflation risks. No effort should be spared by the central banks, as well as by finance ministries of the major economies, to promote policy coordination.

Importantly, as we have advocated several times in the past, strengthened dialogue and coordination between the authorities of the leading emerging market economies and the G7 is essential and we hope that an expansion of the G7, perhaps to a G11 - including Brazil, China, India and Russia - can be initiated soon.

The IIF's economists are forecasting a moderation in net private capital flows to emerging markets to around $730 billion this year following a huge jump in 2007 to the record level of $780 billion. The second highest ever level of private capital flows projected for 2008 largely reflects IIF assessments of investor confidence based on the record of sound economic policies that many emerging market governments have implemented.

The new report does, however, highlight differences in the outlook among emerging market economies. The report notes the continuing overall strength of Asia/Pacific and most of Latin America; while raising concern about some of the emerging market economies in Europe.

There is no doubt that the U.S. slowdown has a direct impact on a number of Latin American economies, most notably Mexico. Sound public policies over recent years have been a significant factor that now allows the Mexican Government to implement counter-cyclical measures that can support growth at a difficult time.

And, here in Brazil, we have also seen the development of policies that have enabled the economy to be resilient in a more challenging international environment. Double digit increases in investment and strong aggregate demand are continuing to drive industrial production here.

However, in this country and in other emerging market economies, this is a time for major efforts by governments to move forward to strengthen macro-economic policies even further and make meaningful progress on structural reforms in the face, in particular, of what I expect will be an exceptionally difficult global environment in the period immediately ahead.

Thank you and I know that Francisco has some comments on these topics as well.

Mr. Francisco González

Good afternoon and thank you. It is a great pleasure to be here today and to participate in my first IIF press conference as a Vice Chairman of the Institute's Board of Directors.

My colleagues have already made some insightful comments on the global economic situation. There is no question that the sound policies in many emerging market countries are contributing to global growth today. This is especially evident at a time when the leading industrial economies are experiencing slower growth. For many years we have seen the momentum of globalization in encouraging trade and investment, and a very important result, which is now increasingly clear, is that we have a more balanced global economy with a greater number of centers of growth that can contribute to a healthy world economic environment.

As we are here in Latin America let me just focus on this region. The new numbers of net private capital flows released by the IIF today are impressive. We can see that in 2007 there was a record level of flows into Brazil, Colombia, Mexico and Peru and almost a record inflow to Chile as well. What these economies, and several others, have in common is that their governments for a number of years now have made serious and successful efforts to strengthen their economies - to strengthen public finance, contain inflation, to promote investment and to encourage greater integration into the global economy.

These policies are now generating significant foreign direct investment inflows to the region - these are long-term investments. Today's IIF report suggests that the FDI flows this year are likely to match last year's record of around $55 billion, which is most encouraging as we look ahead to Latin America's economic prospects.

Bill (Rhodes) just made the most important point that the uncertainties in the global economy mean that every government needs to ensure that it has policies in place that can continue to secure confidence and growth. I share Roberto's view that most governments in this region recognize this and that they are well positioned to maintain their improved fundamentals and continue to experience solid growth.

But, there is no room for complacency. For example, it is not clear whether commodity prices can remain at the current high levels. It is important to note that countries such as Chile, Peru, Colombia and Brazil, and others, have all benefited from their substantial exports of commodities, which have provided them with a substantial cushion of international reserves, stronger public finances and stable economies.

It is important that countries continue to set aside an increasing portion of their windfall export earnings as a hedge against a possible downturn in commodity prices. In addition, it is also essential that the Latin American governments make every effort to implement much needed structural reforms to further enhance the efficiency and resilience of their economies against shock. Thank you.

Mr. Roberto Setúbal

Good afternoon. It is my pleasure to welcome you to this press conference and to welcome all of the IIF's members to this the first full Membership Meeting of the Institute ever to be held in Latin America. I think I can speak on behalf of all of the Latin American member institutions of the IIF in particularly welcoming you Joe and the leadership of the Board today to Rio, Brazil and to Latin America.

The IIF was born 25 years ago on the eve of the Latin American debt crisis. The Institute has weathered many storms with us in this region as we have seen far too many economic and financial crises over the years. The IIF has played important constructive roles through its economic analysis, its advice and its policy advocacy. Against this background it is heartening to note that this conference is taking place at a time when many of the region's key economies are demonstrating resilience in the face of severe strains in the mature economies.

The resilience reflects commitments by public authorities to sound macro-economic policies that can enjoy the confidence of investors; to the modernization of industry that has been gathering speed in quite a number of the region's economies; to major progress in the development of financial institutions and capital markets in Latin America, and, importantly to sustainable economic growth.

On Brazil, let me just note that policies introduced to stabilize the economy and decrease vulnerability to shocks from abroad have improved the climate for private investment. Double digit increases in investment, in response to strong demand for Brazil's exports and robust growth of domestic demand, are driving rapid growth of the economy and further improvement in the country's fundamentals.

The program for our meetings is exceptional, covering key topics of the day and involving outstanding experts in international economics and finance. A central issue before us is the degree to which the problems in the leading industrial economies will impact us in this region. Of course all of us will be impacted somewhat, but I believe we are well positioned to weather these storms without major setbacks.

I am confident about the future and in large measure because we have all learned how important it is at times like this to redouble our efforts at solid and prudent management. Moreover, in this context, allow me also note the important role that the IIF is playing in formulating approaches through the Committee on Market Best Practices, which will prove to be a benefit to the financial industry and to the stability of the global financial system itself.

Thank you and welcome.