Chair: Michael Callaghan (Executive Director, Macroeconomic Group (International) and Special Envoy, The Treasury, Australia)

Presenters: Jose Viñals (Financial Counsellor, Monetary and Capital Markets Department, IMF) and Paolo Mauro (Division Chief, Fiscal Affairs Department, IMF)

Lead Discussants:
Jean-Pierre Landau (Second Deputy Governor, Bank of France)
Eisuke Sakakibara (Professor, Waseda University)

Objectives
Putting the fiscal and monetary accounts back in order, in the wake of the crisis, and restoring financial stability is a major policy topic. While it is still premature to exit, it is not too soon to prepare for this by clarifying the strategy governments will follow to normalize policies. The session will outline key principles for the required adjustment, including the timing and sequence for exit, and scope for coordination.

Topics for discussion:
▪ Restoring normalcy to fiscal policy. The key issues are (i) the implications on growth and interest rates of the surge in public debt (ii) the need for fiscal adjustment—going well beyond unwinding stimulus measures—to ensure sustainability of public finances; (iii) the timing and mix of policy measures, including long-term entitlement reform; and (iv) the supportive role of fiscal policy frameworks and institutions.

▪ Returning to a normal monetary policy framework and withdrawing financial sector support. The main issues include (i) the timing, preconditions and operational aspects of withdrawal of monetary policy and liquidity support measures; (ii) review of monetary policy framework going forward; (iii) managing market disruption risks as exit takes place from withdrawing government guarantee and capital injections; and (iv) minimizing risk of future losses from crisis related financial assets on government and central bank balance sheets.

▪ Strengthening coordination. The issues include (i) better coordination across fiscal, monetary, and financial policies, within a country and across borders; (ii) effective communication; and (iii) possible risks and challenges during the process of exiting, such as increased capital inflows into emerging and commodity markets, and regulatory arbitrage.

Chair: Jong-Wha Lee (Chief Economist, Economics and Research Department, Asian Development Bank)

Presenter: Giovanni Dell'Ariccia (Advisor, Research Department, IMF)

Lead Discussants:
Yung Chul Park (Professor of Economics, Korea University)
Jürgen Stark (Member of the Executive Board, European Central Bank)

Objectives
The crisis has shown that vulnerabilities and threats to macro-financial stability may develop under a seemingly tranquil surface of low and stable inflation and output gap. This session will examine how the crisis has challenged the consensus view of the macroeconomic policy framework. In that context, it will discuss if and how macroeconomic policy should respond to sectoral imbalances and asset-price and housing bubbles; and the potential role for macro-prudential regulation.

Topics for discussion
▪ The complementary roles of monetary policy and macro-prudential regulation in dealing with asset-price booms/busts.

▪ The zero nominal interest rate bound and the level of inflation targets.

▪ Who should be in charge of macroprudential regulation: Regulatory agencies or central banks

▪ What are the lessons for fiscal policy?

Chair: Yoon Je Cho (Dean of Graduate School of International Studies, Sogang University)

Presenter: Laura Kodres (Division Chief, Monetary and Capital Markets Department, IMF)

Lead Discussants:
Philip Lowe (Assistant Governor (Economic), Reserve Bank of Australia)
Hyun Song Shin (Presidential Advisor on International Finance, Korea)

Objectives
The crisis has motivated a profound re-evaluation of the global financial system. How both policymakers and the private sector respond to the recent events will shape the future financial system and its role in the global economy for at least a generation. This session will explore the probable outcomes of changes in financial regulation and supervision, the competitive environment for financial institutions, improvements to the market infrastructure, and the introduction of macro-prudential policies.

Topics for discussion
▪ Is the new emphasis on financial regulation and supervisory structures that seek to address the systemic nature of financial risks likely to be an effective approach towards limiting future crises?

▪ What should be the prerequisites for such an approach in terms of widening the perimeter of regulation to non-bank financial institutions and finding ways to internalize externalities that lead to excessive leverage and risk-taking?

▪ In working towards global consistency of regulation to quell systemic risks and “to maintain a level playing field,” what are the areas where this might be difficult to achieve and what are possible solutions?

▪ How can regulatory and supervisory efforts to mitigate systemic risks be balanced with the benefits of innovation and a more globally integrated financial system?

Chair: Takatoshi Ito (Professor, Graduate School of Economics, University of Tokyo

Presenter: Olivier Blanchard (Economic Counsellor and Director, IMF)

Lead Discussants:
Charles Bean (Deputy Governor, Bank of England)
Justin Lin (Sr. Vice President and Chief Economist, World Bank)

Objectives
Before the crisis, there were strong arguments for reducing global imbalances. As a result of the crisis, there have been significant changes in saving and investment patterns across the world, and imbalances have narrowed considerably. Does this mean that imbalances are a problem of the past? Hardly. The paper argues that there is an urgent need to implement policy changes to address the domestic and international distortions that are a key cause of imbalances. Failure to do so could result in the world economy being stuck “in the middle of the stream”, threatening the sustainability of the recovery.

Topics for discussion
▪ Are global current account imbalances a threat to the recovery and/or to global financial stability?

▪ Can policy actions contribute to reducing the (domestic and international) distortions that cause imbalances?

▪ Which actions could the major countries and regions undertake, and how effective would these actions be in reducing imbalances?

▪ From a global political economy view point, can countries be convinced to take these required actions?

Chair: John Williamson (Senior Fellow, Peterson Institute for International Economics)

Presenter: Isabelle Mateos y Lago (Advisor, Strategy, Policy, and Review Department, IMF)

Lead Discussants:
Changyong Rhee (Secretary General and Sherpa of Presidential Committee for the G20 Summit)
Jean Pisani-Ferry (Director, Bruegel)

Objectives
The global crisis resurrected deep-rooted concerns about the functioning of the international monetary system. Despite its relative stability in the crisis, the current system has inherent weaknesses. These have been amplified in recent years by a sharp rise in the demand for reserves, reflecting in part emerging markets’ tendency to self-insure against costly capital account crises. As this tendency is widely expected to accentuate in the wake of the crisis, it is worth exploring what can be done to ease these tensions. Solutions exist on the demand side—e.g., alternative insurance arrangements that could mitigate the precautionary demand for reserves; and on the supply side— a menu of alternative reserve assets could offer sustained stability and efficiency, although most face significant practical and political hurdles.

Topics for discussion
▪ To what extent does the recent crisis suggest a need to fundamentally reform the international monetary system, as opposed to laying to rest concerns about long term macroeconomic stability in the main reserve issuer?

▪ What can be done to contain precautionary reserve accumulation? Is there scope to contain other sources of reserve accumulation? How?

▪ Are superior alternatives to U.S.-issued reserve assets conceivable over the medium to long run? Which ones? What would it take for them to emerge?

Panelists, drawing upon the discussions during the Conference, will discuss the role of Asian countries in reconstructing the international monetary system.

Chair: Dr. Oh-Seok Hyun

Panelists: Olivier Blanchard, Michael Callaghan, Yoon Je Cho, Takatoshi Ito, Jong-Wha Lee, and John Williamson