The New Face of Central The New Face of Central BankBank PoliciesPolicies and Its and Its

Reflections Reflections oonn Developing CountriesDeveloping Countries

Dr. Aylin Abuk DuyguluDr. Aylin Abuk DuyguluDokuz Eylul University, Department of EconomicsDokuz Eylul University, Department of Economics

aylin.duygulu@deu.edu.traylin.duygulu@deu.edu.tr

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Old-Fashion Central BankingOld-Fashion Central Banking

Central Banks (CBs) consider developmental Central Banks (CBs) consider developmental issues.issues.

Monetary policy has a critical role to play in Monetary policy has a critical role to play in growth (Epstein growth (Epstein andand Yeldan, 2006). Yeldan, 2006).

CBs have some monetary policy tools which are CBs have some monetary policy tools which are direct instruments to direct instruments to aaffect the ffect the economic economic sectorssectors of high of high prioritypriority..

Direct instruments: such as credit allocation Direct instruments: such as credit allocation techniques (subsidized interest rates, credit techniques (subsidized interest rates, credit ceilings) and capital controls.ceilings) and capital controls.

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CBs have more than one goals (employment, CBs have more than one goals (employment, growth, price stabilization) so need more growth, price stabilization) so need more instruments (Jan Tinbergen: you need to have instruments (Jan Tinbergen: you need to have as many instruments as targets) as many instruments as targets)

Virtually CBs are Virtually CBs are

-financing governments( so they are not -financing governments( so they are not independentindependent),),

- managing exchange rates, - managing exchange rates,

- supporting economic sectors (Epstein, 2006).- supporting economic sectors (Epstein, 2006).

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Most historians identify the following functions Most historians identify the following functions as being historically essential to the operations as being historically essential to the operations of CBs (Epstein,2006):of CBs (Epstein,2006):

Unifying and issuing the country’s bank notes,Unifying and issuing the country’s bank notes, Acting as the government’s bank,Acting as the government’s bank, Acting as the commercial banks’ bank,Acting as the commercial banks’ bank, Serving as a lender of last resort to the banking Serving as a lender of last resort to the banking

and even the financial system as a whole,and even the financial system as a whole, Conducting monetary policy to manage the Conducting monetary policy to manage the

foreign exchanges and the price level,foreign exchanges and the price level, Conducting monetary policy to manage the Conducting monetary policy to manage the

overall level of economic activity,overall level of economic activity, Allocating credit to promote national goals.Allocating credit to promote national goals.

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In addition to these, there are at least three In addition to these, there are at least three other roles of CBs:other roles of CBs:

-The Distributive role (the effects of CB policies -The Distributive role (the effects of CB policies on different class and groups)on different class and groups)

-The Political role (whether or not the CB is -The Political role (whether or not the CB is independent independent fromfrom the government) the government)

-The Allocative role (the effects of CB policies on -The Allocative role (the effects of CB policies on the profitability and accessibility the profitability and accessibility toto credits) credits)

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Modern Central BankingModern Central Banking

In modern central banking, CBs attempt to In modern central banking, CBs attempt to (Epstein,2005):(Epstein,2005):- keep inflation at a very low level,- keep inflation at a very low level,- reduce central bank support for government - reduce central bank support for government fiscal deficits,fiscal deficits,-help manage the country’s integration into world -help manage the country’s integration into world trade and financial markets,trade and financial markets,-reduce the influence of democratic, social and -reduce the influence of democratic, social and political forces on CB policy.political forces on CB policy.

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We can name these attempts as We can name these attempts as “neo-liberal “neo-liberal approach to central banking” approach to central banking” (Epstein, 2006).(Epstein, 2006).

This neo-liberal approachThis neo-liberal approach has has following key following key features:features:- CB independence,- CB independence,- a focus on inflation targeting,- a focus on inflation targeting,- the use of indirect instruments of monetary - the use of indirect instruments of monetary policy.policy.

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Why modern central banking can be Why modern central banking can be named as named as a a neo-liberal approach?neo-liberal approach?

The main points of neo-liberalism include The main points of neo-liberalism include (Martinez and Garcia,2000):(Martinez and Garcia,2000):- The Rule of the market- The Rule of the market- Cutting public expenditure for social services- Cutting public expenditure for social services- Deregulation- Deregulation- Privatization- Privatization- Eliminating the concept of “the public good” or - Eliminating the concept of “the public good” or “community” and replacing it with “individual “community” and replacing it with “individual responsibility”.responsibility”.

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Key features of neo-liberal approach to Key features of neo-liberal approach to central bankingcentral banking

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CB IndependenceCB Independence

Monetary policy conducted by independent CBs Monetary policy conducted by independent CBs played an important role in reducing inflation played an important role in reducing inflation rates.rates.

What is CB independence? What is CB independence? ““CB independence implies first and foremost CB independence implies first and foremost

that the CB should not be subject to pressure that the CB should not be subject to pressure from the government to finance government from the government to finance government activities (deficits)” activities (deficits)” (Epstein, 2006)(Epstein, 2006)

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Inflation targetingInflation targeting

Inflation targeting is a monetary policy strategy Inflation targeting is a monetary policy strategy which focuses on which focuses on onlyonly low inflation rates. low inflation rates.

The focus on inflation means that the CB should The focus on inflation means that the CB should not be concerned with other goals such as not be concerned with other goals such as promoting full employment, supporting industrial promoting full employment, supporting industrial policy or allocating credit to policy or allocating credit to the the sectorssectors of high of high priority.priority.

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Rational behind the inflation targeting stems Rational behind the inflation targeting stems from the old monetarist argument that in the long from the old monetarist argument that in the long run,run, monetary policy can only affect inflation. monetary policy can only affect inflation. However this theoretical tradition depends on However this theoretical tradition depends on invalid assumptions such as neutrality of moneyinvalid assumptions such as neutrality of money..

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It’s expected that inflation targeting will It’s expected that inflation targeting will (Epstein,2005);(Epstein,2005);

- reduce - reduce the the rate of inflation,rate of inflation,

- enhance the credibility of monetary policy,- enhance the credibility of monetary policy,

- reduce the sacrifice ratio associated with - reduce the sacrifice ratio associated with contractionary monetary policy,contractionary monetary policy,

- help to attract foreign investment.- help to attract foreign investment.

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Michael Kumof (2000) stated that the suitability Michael Kumof (2000) stated that the suitability of inflation targeting was first discussed in of inflation targeting was first discussed in Masson, Savastano and Sharma’s (1997) Masson, Savastano and Sharma’s (1997) studies. They find that the policy is unsuitable studies. They find that the policy is unsuitable for most emerging markets (for most emerging markets ( i.e. developing i.e. developing countriescountries), based on two objections:), based on two objections:

Argument 1:Argument 1: R Reduce educe the the rate of inflationrate of inflation

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First: First: for emerging markets the exchange rate remains for emerging markets the exchange rate remains

an important additional objective of monetary an important additional objective of monetary policy which is bound to lead to conflicts with the policy which is bound to lead to conflicts with the inflation target.inflation target.

Second:Second: inflation targeting may no longer be applicable to inflation targeting may no longer be applicable to

all emerging markets all emerging markets what it means for the what it means for the majority of them is fiscal dominancemajority of them is fiscal dominance..

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In the introductionIn the introduction of their research of their research paperpaper, Victor , Victor Polterovich and Vladimir Popov Polterovich and Vladimir Popov argueargue that that considerableconsiderable number of empirical number of empirical studiesstudies demonstrated that inflation has a negative demonstrated that inflation has a negative impact on growth impact on growth onlyonly if it exceeds a certain if it exceeds a certain threshold. Otherwise low inflation has no impact threshold. Otherwise low inflation has no impact or even accelerates growth (in accordance with or even accelerates growth (in accordance with the World Bankthe World Bank’s’s classification classification of of countriescountries - - low low income: inflation rate %11-16income: inflation rate %11-16;; lower middle: lower middle: inflation rate %15-21inflation rate %15-21;; upper middle: inflation rate upper middle: inflation rate %4-5).%4-5).

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Argument 2:Argument 2: R Reduce the sacrifice ratio educe the sacrifice ratio associated with contractionary monetary policyassociated with contractionary monetary policy

Countries that adopt inflation targeting achieve Countries that adopt inflation targeting achieve lower inflation rates by causing recessions and lower inflation rates by causing recessions and by throwing people out of work (by throwing people out of work (the increase in the increase in productivity ???).productivity ???).

It’s seen that inflation targeting strategy has It’s seen that inflation targeting strategy has been apparent inability to reduce the sacrifice been apparent inability to reduce the sacrifice ratio (Epstein, 2005).ratio (Epstein, 2005).

____________________________ Sacrifice ratioSacrifice ratio:: the loss of output or employment the loss of output or employment

associated with a given reduction in inflation associated with a given reduction in inflation (Heintz, 2006) or the unemployment costs of (Heintz, 2006) or the unemployment costs of fighting inflation (Epstein, 2005).fighting inflation (Epstein, 2005).

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Some Problems Some Problems Originating fromOriginating from the the Inflation Targeting StrategyInflation Targeting Strategy

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Instrument ProblemInstrument Problem

A CB that adopt inflation targeting has only one A CB that adopt inflation targeting has only one instrument, namely short-term interest rate.instrument, namely short-term interest rate.

The inflation targeting CBs reduceThe inflation targeting CBs reduce inflation by inflation by raising interestraising interest rates rates because monetary because monetary authorities frequently use short term interest authorities frequently use short term interest rates as a weapon against inflation.rates as a weapon against inflation.

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HoweverHowever,, this policy lead this policy leadss to an overvaluation of to an overvaluation of the exchange rate because of the capital inflows.the exchange rate because of the capital inflows.

Rising interest rates Rising interest rates aaffect the short term capital ffect the short term capital flows, as capital flows into a country, the nominal flows, as capital flows into a country, the nominal exchange rate appreciates.exchange rate appreciates.

Exactly under this strategy, low inflation targets Exactly under this strategy, low inflation targets can lead to appreciation of the real exchange can lead to appreciation of the real exchange rate. This reduces export competitiveness but rate. This reduces export competitiveness but increases imports (Heintz, 2006). In other words, increases imports (Heintz, 2006). In other words, negative effects occur on net export. negative effects occur on net export.

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We know that We know that exchange rate is an exchange rate is an important factor in determining inflation important factor in determining inflation rate in developing countries, CB can not rate in developing countries, CB can not be be completelycompletely free free to let the exchange rate to let the exchange rate float.float.

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What is recommended by What is recommended by the the IMF and IMF and the the Orthodoxy?Orthodoxy?

Currently recommended by Currently recommended by the the IMF and IMF and the the orthodoxyorthodoxy::- A fully opened capital account- no capital - A fully opened capital account- no capital controls or other restrictions on capital mobility,controls or other restrictions on capital mobility,- A pure floating, market determined exchange - A pure floating, market determined exchange rate-non-intervention in the foreign exchange rate-non-intervention in the foreign exchange market,market,-An inflation targeting monetary policy.-An inflation targeting monetary policy.

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This combination has an important negative This combination has an important negative attribute (Frenkel,attribute (Frenkel,20052005):):

The volatility of capital flows is transmitted The volatility of capital flows is transmitted through the volatility of nominal and real through the volatility of nominal and real exchange rates and relative prices with adverse exchange rates and relative prices with adverse effects on employment and growth.effects on employment and growth.

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The Cost of Accumulating ReserveThe Cost of Accumulating Reserve

Another important issue is capital account Another important issue is capital account liberalization and unstable financial flows are liberalization and unstable financial flows are needed needed to increaseto increase reserves as protection. reserves as protection.

In the absence of any exchange rate target In the absence of any exchange rate target officially stated (because a pure floating officially stated (because a pure floating exchange rate), the need for holding foreign exchange rate), the need for holding foreign reserves at the CBs should have been minimal reserves at the CBs should have been minimal (Epstein and Yeldan,2006).(Epstein and Yeldan,2006).

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Rodrik (Rodrik (20062006) stated that developing countries ) stated that developing countries began to accumulate reserves as a began to accumulate reserves as a consequence of financial liberalization and consequence of financial liberalization and globalization and the increase in developing globalization and the increase in developing country’s reserves is related to changes not in country’s reserves is related to changes not in real quantities (such as import or output) but in real quantities (such as import or output) but in financial magnitudes.financial magnitudes.

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The need for reserve can be explain by The need for reserve can be explain by the the need need for liquidity.for liquidity.

Liquidity,Liquidity, in turn, could be achieved via three in turn, could be achieved via three strategies (Rodrik,strategies (Rodrik,20062006):):

- Reducing short-term debt,- Reducing short-term debt,

- Creating a collateralized credit facility,- Creating a collateralized credit facility,

- Increasing foreign exchange reserves of the - Increasing foreign exchange reserves of the CBs.CBs.

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However accumulating reserves is also costly.However accumulating reserves is also costly.

The costs include:The costs include:- The spread between the yield on liquid reserve - The spread between the yield on liquid reserve assets and the external costs of funds,assets and the external costs of funds,- The sterilization policy causing an increase of - The sterilization policy causing an increase of interest rates,interest rates,- Not using this source on the creation of - Not using this source on the creation of employment or education.employment or education.

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Dani Rodrik (Dani Rodrik (20062006) says that the spread ) says that the spread between the yield on liquid reserve assets and between the yield on liquid reserve assets and the external costs of funds represents the social the external costs of funds represents the social cost of self-insurance.cost of self-insurance.

In his study he In his study he calculatedcalculated this cost is close to 1 this cost is close to 1 percent of GDP.percent of GDP.

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When CBs attempt to compensate the liquid When CBs attempt to compensate the liquid effect of accumulating reserve, they sterilizing effect of accumulating reserve, they sterilizing them by selling domestic liabilities from their them by selling domestic liabilities from their portfolio may even bid up local interest rates portfolio may even bid up local interest rates (Frenkel and Taylor,2006).(Frenkel and Taylor,2006).

So this can cause more capital inflows again and So this can cause more capital inflows again and appreciation of exchange rate.appreciation of exchange rate.

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The Argument of TrilemmaThe Argument of Trilemma

The impossible trinity-trilemma says that CBs The impossible trinity-trilemma says that CBs can onlycan only have have two out of three of the following two out of three of the following optionsoptions: open capital markets, a fixed exchange : open capital markets, a fixed exchange rate system and an autonomous monetary rate system and an autonomous monetary policy.policy.

In an In an ((internationallyinternationally)) financially integrated financially integrated economy with high capital flows, monetary policy economy with high capital flows, monetary policy is bounded only one instrument-short term is bounded only one instrument-short term interest rate.interest rate.

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It can be concludedIt can be concluded that without any capital that without any capital control control mechanismsmechanisms or any exchange rate or any exchange rate arrangements, a central bank using only short arrangements, a central bank using only short term interest rateterm interest ratess can not achieve low inflation can not achieve low inflation rates with a low sacrifice ratio.rates with a low sacrifice ratio.

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Low Inflation Rates-For Whom?Low Inflation Rates-For Whom?

Low inflation rates or price stability is for whom?Low inflation rates or price stability is for whom?

Inflation targetingInflation targetinglow inflation rateslow inflation ratesbut high but high sacrifice ratio, loss of CB credibility.sacrifice ratio, loss of CB credibility.

So why So why the the IMF and IMF and the the Orthodoxy insist on Orthodoxy insist on inflation targeting?inflation targeting?

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Epstein and Power (2003) answer this question:Epstein and Power (2003) answer this question:

Focus on fighting inflation and keeping it low and Focus on fighting inflation and keeping it low and stable is in the interest of rentier groups in these stable is in the interest of rentier groups in these countrcountriesies..

Who is rentierWho is rentier?? Keynes refers to the rentier as the functionless Keynes refers to the rentier as the functionless

investor who generates income via his investor who generates income via his ownership of capital. ownership of capital.

KaleckiKalecki’s definition’s definition: it represents the income : it represents the income received by owners of financial firms + the return received by owners of financial firms + the return to holders of financial assets generally.to holders of financial assets generally.

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High inflation rates decrease the value of High inflation rates decrease the value of financial wealth. financial wealth.

In addition, higher interest rates attractIn addition, higher interest rates attract financial financial flows flows searchingsearching only only high gains.high gains.

Financial liberalization and liberalization of the Financial liberalization and liberalization of the capital account created more financial instability, capital account created more financial instability, and thereby, created the need for economic and thereby, created the need for economic actors to purchase more financial products and actors to purchase more financial products and create more profits for finance (Epstein and create more profits for finance (Epstein and Power ,2003) .Power ,2003) .

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Epstein and Power (2003) present that in many Epstein and Power (2003) present that in many countries, higher real interest rates and lower countries, higher real interest rates and lower inflation increase the rentier shares of income.inflation increase the rentier shares of income.

In a neo-liberal world, the countries are In a neo-liberal world, the countries are conditioned to adopt and maintain contractionary conditioned to adopt and maintain contractionary monetary policies (i.e. inflation targeting) in order monetary policies (i.e. inflation targeting) in order to secure “investor confidence” and to secure “investor confidence” and “international credit worthiness” (Epstein and “international credit worthiness” (Epstein and Yeldan,2006).Yeldan,2006).

So, CBs are independent from government So, CBs are independent from government deficits but dependent on “investor confidence”.deficits but dependent on “investor confidence”.

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The case The case ofof Turkey Turkey

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Central Banking in TurkeyCentral Banking in Turkey

Central Bank of Republic of Turkey (CBRT) Central Bank of Republic of Turkey (CBRT) used to act as an agent of developused to act as an agent of developmentment before before the midthe mid 1980s.1980s.

But in the 1990s, like most CBs, CBRT gBut in the 1990s, like most CBs, CBRT gaveave its its priority to the macroeconomic stability- priority to the macroeconomic stability- aa combination of price stability and financial combination of price stability and financial stability.stability.

To achieve the stability To achieve the stability objectiveobjective, CBRT , CBRT startedstarted to use indirect instruments heavily, such as open to use indirect instruments heavily, such as open market operations.market operations.

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In 2001, CBRTIn 2001, CBRT announced its independence announced its independence after a change in its legislation.after a change in its legislation.

In the period of 2001-2006, CBRT adoptIn the period of 2001-2006, CBRT adopteded implicit inflation targeting strategy.implicit inflation targeting strategy.

In 2006, CBRT announced to adopt explicit In 2006, CBRT announced to adopt explicit inflation targeting.inflation targeting.

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Table 1:Table 1:Main Macroeconomic Indicators of Turkey (Sources: CBRT and SIS)Main Macroeconomic Indicators of Turkey (Sources: CBRT and SIS)Indicators 2001 2002 2003 2004 2005 2006

CPI inf. (%) 68.5 29.7 18.4 9.32 7.72 9.65

GNP growth (%) -9.5 7.9 5.9 9.9 7.6 6.0

Real XR (1995=100) 112.5 125.3 136.5 143.5 160.0 160.6

T-Bill rate (%) 82.3 62.7 46.0 24.7 16.3 18.0

Current Account Balance (million $)

3.390 -1.524 -8.036 -15.604 -22.824 -31.460

Current Account Balance/GNP(%)

2.4 -0.8 -3.4 -5.2 -6.4 -7.9

Foreign Debt Stock (million $)

113.593 129.701 144.915 160.789 168.808 206.471

Short Term Foreign Debt Stock (million $)

16.403 16.424 23.013 31.880 37.103 41.984

FDI (million $) 2.771 830 1.253 2.024 8.726 19.234

CB Reserves

(million $)

19.799 28.071 35.162 37.643 52.432 60.707

Unemployment rate (%)

8.4 10.3 10.5 10.3 10.3 9.9

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Assessing the Inflation Targeting Assessing the Inflation Targeting Strategy in TurkeyStrategy in Turkey

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YearsYears CPI inflation CPI inflation (%)(%)

Growth Growth Rate (%)Rate (%)

Unemployment rate+ Unemployment rate+ discouraged workers discouraged workers

rate (%)rate (%)

20012001 68.568.5 -9.5-9.5 12.312.3

20022002 29.729.7 7.97.9 14.014.0

20032003 18.418.4 5.95.9 14.014.0

20042004 9.329.32 9.99.9 14.614.6

20052005 7.727.72 7.67.6 16.116.1

20062006 9.659.65 6.06.0 16.616.6

Sources:CBRT and SIS

Table 2:Inflation, Growth and Unemployment in Turkey

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Inflation, Growth and Unemployment in Turkey

-20

-10

0

10

20

30

40

50

60

70

80

2001 2002 2003 2004 2005 2006

Years

CPI

Growth

Unemployment

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Volatility of growth and inflation in Turkey Volatility of growth and inflation in Turkey (2001-2006)(2001-2006)

Volatility of Growth : 1.527Volatility of Growth : 1.527

Volatility of Inflation (CPI) : 0.9785 Volatility of Inflation (CPI) : 0.9785

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AnnualAnnual

SectorsSectors 20032003 20042004 20052005 20062006

AgricultureAgriculture 11 44 55 66

MiningMining 1414 7575 4040 120120

ManufacturingManufacturing 448448 214214 789789 1.3951.395

Services*Services* 196196 927927 7.6997.699 15.81315.813

OtherOther 8686 7171 44 112112

TotalTotal 745745 1.2911.291 8.53478.5347 17.44617.446

* * AnAn increase increase particularly particularly in in the the financial intermediafinancial intermediariesries sector sector

Table 3:Foreign Direct Investment Inflow by Sectors in Turkey (Million $)

Source: T.R. Prime Ministry, State Planning Organization

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Percentage SharePercentage Share

SectorsSectors 20032003 20042004 20052005 20062006

AgricultureAgriculture 0.10.1 0.30.3 0.10.1 0.00.0

MiningMining 1.91.9 5.85.8 0.50.5 0.70.7

ManufacturingManufacturing 60.160.1 16.616.6 9.29.2 8.08.0

Services*Services* 26.326.3 71.871.8 90.290.2 90.690.6

OtherOther 17.017.0 7.97.9 0.40.4 0.60.6

TotalTotal 100.0100.0 100.0100.0 100.0100.0 100.0100.0

* * AnAn increase increase particularly particularly in in the the financial intermediafinancial intermediariesries sector sector

Table 4:Foreign Direct Investment Inflow by Sectors in Turkey (%)

Source: T.R. Prime Ministry, State Planning Organization

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YearsYears Real XR Real XR (1995=100)(1995=100)

Current Account Current Account Balance (Million $)Balance (Million $)

CB Reserves CB Reserves (million $)(million $)

20012001 112.5112.5 3.3903.390 19.79919.799

20022002 125.3125.3 -1.524-1.524 28.07128.071

20032003 136.5136.5 -8.036-8.036 35.16235.162

20042004 143.5143.5 -15.604-15.604 37.64337.643

20052005 160.0160.0 -22.824-22.824 52.43252.432

20062006 160.6160.6 -31.460-31.460 60.70760.707

Table 5:Real Exchange Rate, Current Account Balance and Central Bank Reserves in Turkey

Sources: CBRT and SIS

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20052005 20062006

Current AccountCurrent Account

BalanceBalance

-22824-22824 -31316-31316

Capital Originating from Capital Originating from Foreign SourcesForeign Sources

4038140381 5774757747

Capital Originating from Capital Originating from Domestic SourcesDomestic Sources

-2052-2052 -17581-17581

Change in Reserves *Change in Reserves * -17847-17847 -6114-6114

Net Errors and OmissionNet Errors and Omission 23422342 -2736-2736

Net Capital InflowNet Capital Inflow 4067140671 3743037430

Net Capital TransmissionNet Capital Transmission 1702517025 2470824708

Foreign Debt Inducing Foreign Debt Inducing Capital InflowsCapital Inflows

2489924899 3601136011

Foreign Hot MoneyForeign Hot Money 1595015950 1051210512

Domestic Hot MoneyDomestic Hot Money 787787 -17325-17325

Net Hot Money FlowsNet Hot Money Flows 1673716737 -6813-6813

* (-) indicates increase* (-) indicates increase

Source:Source: Boratav (2007) Boratav (2007)

Table 6: Main Components of the Balance Of Payments (Million $)

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ConclusionConclusion

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Central Bank (CB) policies are of great Central Bank (CB) policies are of great importance for both developed and developing importance for both developed and developing countries. In the past, we know that many countries. In the past, we know that many developed countries have used some monetary developed countries have used some monetary policy tools to reach development objectives as policy tools to reach development objectives as an important part of their tasks. Now, most an important part of their tasks. Now, most developing countries want to adopt a ‘new’ developing countries want to adopt a ‘new’ monetary policy strategy namely ‘inflation monetary policy strategy namely ‘inflation targeting’ which only focus on the ‘price stability’. targeting’ which only focus on the ‘price stability’. In this strategy, we see that CB operations have In this strategy, we see that CB operations have changed from using direct instruments to changed from using direct instruments to ‘market-based’ operations like using indirect ‘market-based’ operations like using indirect instruments.instruments.

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On the other hand, thOn the other hand, theessee new CB policies also new CB policies also raise some problems especially in developing raise some problems especially in developing countries, for example rising current account countries, for example rising current account deficits, unemployment and unstable growdeficits, unemployment and unstable growthth rates. These problems are often related to the rates. These problems are often related to the financial liberalization-unstable financial flows- financial liberalization-unstable financial flows- which eliminates capital controls and exchange which eliminates capital controls and exchange rate controls. rate controls.

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Hence the central banks of developing countries Hence the central banks of developing countries must must rereconsider the era of globalization and its consider the era of globalization and its negative effects on their economies.negative effects on their economies.

They can begin to realize it They can begin to realize it byby accepting that accepting that there must be an alternative approachthere must be an alternative approach..

In my opinion, this will be a good starting point In my opinion, this will be a good starting point for us. for us.

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And finally,And finally,

Thanks to the Thanks to the IDEAs,IDEAs, Tsinghua University and the Tsinghua University and the School of Economics, Renmin UniversitySchool of Economics, Renmin University for such a for such a

comprehensive organisationcomprehensive organisation

andand Thanks to you for your patienceThanks to you for your patience..