Interview: Ana Maria Carrasquilla Barrera
What lessons can be learned from developed countries about effective reserve management?
ANA MARIA CARRASQUILLA BARRERA: International reserves are a means of self-insurance for countries to cope with external shocks that may affect their macroeconomic stability. Such safeguard mechanisms do involve costs, but these can be reduced through international reserves administration schemes, whereby countries with lower financial sophistication can learn from those with higher without jeopardising economic stability. In this regard, it is essential that central banks from both higher- and lower-income countries share information and engage in effective and fluid dialogue.
How can central banks, sovereign funds and FLAR cooperate to optimise reserves management?
CARRASQUILLA: Over the last few years, FLAR has implemented two types of cooperation with both central banks and sovereign funds. The first is an ongoing dialogue among the region’s economic policymakers, which contributes to the sharing of experiences and methods related to managing reserves and external liquidity. Secondly, FLAR can directly administer a portion of international reserves. Likewise, we are always available to offer specific training and direct technology transfer to countries with less experience in reserves management, for both member and non-member countries in the region.
Would Mexico and Brazil’s entry into FLAR improve financial stability in Latin America?
CARRASQUILLA: If the region’s two biggest economies joined FLAR this would bring significant improvements, particularly by creating a coordinated action plan for balance of payments issues caused by external shocks. A more synchronised manoeuvring with these economies would also increase the region’s financial and economic efficiency. This would help contain spill-over effects and aid in the acquisition and management of global financial resources. The goal is for member countries to work together to support greater financial stability in the region.
Why is enlarging FLAR’s membership important?
CARRASQUILLA: FLAR currently has eight members: Bolivia, Costa Rica, Ecuador, Paraguay, Peru, Uruguay, Venezuela and Colombia. Expanding its membership would strengthen its ability to safeguard external liquidity – an important fact given the region’s financial circumstances. Latin America is increasing its commercial and financial integration and, like other open economies, has notable exposure to global economic and financial cycles. Founded in 1978 by the Andean countries, FLAR widened its membership with the entry of Costa Rica in 2000, Uruguay in 2008 and Paraguay in 2014, and has been beneficial in crisis episodes of the region’s history. The new members solidify the fund as an effective and valuable mechanism for ensuring macroeconomic stability.
What does being a member mean for a country, both in good times and in times of difficulty?
CARRASQUILLA: Throughout its 37 years of existence, FLAR has contributed to Latin America’s financial solidity both in times of growth and in times of economic turmoil. Serving as insurance against unexpected events with balance of payments, FLAR has made its expertise available in episodes like the financial crisis in the 1980s, the Asian crisis in the late 1990s and the recent economic downturn. A competitive advantage over other funding sources, and one of the aspects most valued by member countries, has been its capacity to respond quickly, effectively and with no conditionality. This makes a huge difference and enables the execution of the strategies that are best suited to each situation. During extreme growth cycles, FLAR has worked to improve the efficiency of the international reserves management strategy.
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