Zurich, January 27, 2009 — Let me join my colleagues in saying that I greatly welcome the establishment in the IIF of the Emerging Markets Advisory Council. You may recall that the Institute was created at a time when the Latin American debt crisis of the 1980s was just starting and back then a number of us, who became deeply involved in the resolution of that crisis, recognized how increasingly central the emerging markets would be to global finance in general, and to the course of the IIF itself. Establishing the Council is a major milestone in the IIF's growth.

The Council has come together at a particularly critical time when emerging markets are set to face exceptional economic challenges. We at the Institute are very fortunate to have two leaders of the international banking community, Roberto Setúbal and Ibrahim Dabdoub, chairing the Council. They have both contributed in most significant ways to the IIF's development. The new Council has immediate importance in helping to guide the IIF's work in stabilizing the environment for emerging markets and encouraging the necessary changes in public policies to support that stabilization.

Now, let me turn to today's IIF report. The prospective 2009 declines in private capital flows raise major questions about potential capital shortfalls to emerging market countries at a time of severe economic strains. In 2007, according to the IIF's data, net private capital flows to emerging markets were more than $920 billion. The dramatic changes that we have seen since then did result, unsurprisingly, in a far lower net volume in 2008, which the IIF estimates was about $460 billion. The strains in the global financial system and in the world economy persist and the IIF now forecasts a far lower total for 2009 at $145 billion.

It is important to recognize that the governments and central banks of many emerging market economies have pursued sound policies in recent years, curbing inflation, promoting investment, building significant reserves, indeed strengthening their overall economic fundamentals, while also pursuing institution building. As a result, quite a number of countries are now better placed than in earlier times to face the economic storms.

But, there is no room for complacency. Vigilance on the part of leaders of the emerging market economies is all the more important given that their countries are susceptible to contagion from the mature economies which will face enormous tests throughout this year. Indeed, there is a clear case for initiatives that ensure that the efforts made by these emerging market countries are backed with international official support.

I have underscored since the IMF annual meetings in Singapore in 2006 that the mature economies will confront serious economic challenges that will have a major impact in emerging markets, and I also emphasized that decoupling was a myth, although the idea was in vogue at the time. Last October, at the IIF press conference in Washington, I stressed the need for explicit actions by the IMF. While we welcome the measures that the Fund has taken, including the introduction of the short-term liquidity facility for market access countries with strong policy track records, this program can only be effective if the maturities are longer and if the amounts available are increased.

The IMF's resources need to be expanded and its approaches modified to provide financing to emerging markets that have been caught in a crisis not of their making. The IMF needs to move with speed to support fully the economic policies that emerging market countries are now pursuing to mitigate the impact of the recession in the mature economies.

We would like to see actions that support the well performing emerging market economies as part of the broader strengthening of the global economy and reform of the architecture of the financial system and here the Group of 20 meeting in London in April will be particularly important. These actions need to be undertaken with a spirit of strong partnership between the public and the private sectors. I also want to emphasize that keeping trade open and guarding against protectionism is essential.

In addition, the IIF has consistently highlighted the need for reforms of regulatory and accounting standards. We are proposing the establishment of a Global Financial Regulatory Coordinating Council to promote implementation of global standards in the major markets. On accounting, we have been proposing a high-level dialogue on standards with a view to establishing convergence and a level playing field, while at the same time mitigating the procyclical effects of current accounting standards and addressing the issues around fair value accounting at times of illiquid markets. Thank you.

Roberto Setúbal
IIF Vice Chairman and President of Banco Itaú Holding Financeira S/A of Brazil

Good afternoon. The establishment of the Emerging Markets Advisory Council within the IIF highlights the growing roles that financial institutions headquartered in the emerging markets are playing in global finance and the need for them to be heard even more strongly. It is a pleasure for me and my Council co-chairman, Ibrahim Dabdoub, to have convened our first meeting here in Zurich this morning.

This is now the time for the major emerging market economies and their financial systems to be fully represented in the global financial architecture. I am pleased that the IIF is showing the way forward with the establishment of the Council. The members of the Council believe that the EMAC will be a powerful instrument in helping to shape the IIF's initiatives and programs, and its role in the discussions on international economic policies and financial regulatory reforms.

Now, permit me to add a couple of comments on capital flows to those that Bill just made. It is important to understand that many of the leading emerging market economies have entered this difficult period in healthier economic condition than in the periods of crisis in the 1990s and in the 1980s, with stronger fundamentals, more pragmatic and more prudent economic policy leadership. At the same time, the leading banking institutions in many emerging market economies, which have largely avoided direct involvement in the sub-prime crisis, are not suffering from the same degree of distress as those in the mature economies. I am confident that both the public and private sectors in many of the emerging economies will continue to move decisively to put in place the policies that these stressful times require and, for a number of countries, there will be major benefit in having the opportunity, as needed, to draw swiftly on expanded IMF resources.

Thank you.