Miguel Fernández Ordóñez: The Spanish experience with banking system restructuring – some lessons Opening address by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, at the Bank of Spain Seminar – Spanish Day, ADB Annual Meetings, Madrid, 6 May 2008. *  *  *  Good morning ladies and gentlemen, I would like to welcome the participants in the Asian Development Bank Annual Meetings to the Seminar organised by Banco de España on the occasion of the Spanish Day of this year's Meetings, which conclude today. I hope that you are enjoying your stay in Madrid. I also hope that, after so many interesting meetings and discussions we will be able to provide you with new food for thought. The stakes are high, but I think that the topics selected for the two sessions of this Seminar and the distinguished panels of participants will be up to the challenge. Indeed, I am convinced that the discussions this morning will raise a number of interesting reflections. They should help us frame a better understanding of the important economic and financial challenges facing a region like Asia, which has become increasingly relevant for the world economy. Specifically, the aim of the Seminar is to reflect on how the financial system can be an instrument to rebalance and foster growth in the region. In this context, I believe that the Spanish experience on banking system restructuring – which is widely viewed as a success story – can provide some interesting lessons.
Most have accumulated massive international reserves, well in excess of what would be needed for precautionary reasons. All in all, this paints a very different picture as compared to past episodes of global turbulence, when these economies used to be not only “influenced” by the ups and downs of the changing risk preferences in global financial markets, but simply “driven” – even “drowned” – by them, sometimes regardless of their economic fundamentals. In my view, this separation from the main stream of the turbulence constitutes an achievement in itself. From other stand point, it is certainly striking that in this period of global financial turbulence inflation is identified as the key economic challenge for emerging economies. Indeed, the rise of inflationary pressures on food prices derived from the commodity boom, is becoming a very worrying concern. The large change in relative prices that underlies this prolonged boom is having a stronger impact on developing economies, with very negative and substantial effects on the well being of the poorest portions of their populations. Therefore, as inflation creeps up the concern of policymakers deepens, not only in the sphere of macroeconomic stability, but beyond. In connection with this, the fact that monetary policies have remained focused on inflation stability in most emerging market economies is an additional novelty to mention in the context of the present turmoil.