CENTRAL BANKS or other monetary authorities have at their disposal both general and specific instruments for controlling credit either by affecting its price (discount rate) or by changing its quantity.1 Open market operations and reserve ratios are general and quantitative measures; discount rates are also general but work through prices (interest rates). However, when central banks wish to influence not only the total volume of credit available but also its specific distribution among users, they may exercise selective controls by making quantitative credit allocations or by charging differential rates to various groups of banks or to individual banks.
I should like to begin my remarks by expressing my thanks to the President of the United States for honoring us with his presence this morning, for the gracious words he has spoken on the work of our institutions, and for the encouragement he has given to our future efforts.
Mr. Paolo Mauro, Mr. Torbjorn I. Becker, Mr. Jonathan David Ostry, Mr. Romain Ranciere, and Mr. Olivier D Jeanne
This paper focuses on what countries can do on their own—that is, on the role of domestic policies—with respect to country insurance. Member countries are routinely faced with a range of shocks that can contribute to higher volatility in aggregate output and, in extreme cases, to economic crises. The presence of such risks underlies a potential demand for mechanisms to soften the blow from adverse economic shocks. For all countries, the first line of defense against adverse shocks is the pursuit of sound policies. In light of the large costs experienced by emerging markets and developing countries as a result of past debt crises, fiscal policies should seek to improve sustainability, taking into account that sustainable debt levels seem to be lower in emerging and developing countries than in advanced countries. Although much can be accomplished by individual countries through sound policies, risk management, and self-insurance through reserves, collective insurance arrangements are likely to continue playing a key role in cushioning countries from the impact of shocks.