In the early years of the MPC there was an intense debate about these imbalances, and how they should affect monetary policy. 24 In a speech in April 2000, I argued that “it is important not to let domestic demand grow too rapidly for too long. The longer the correction is left, the sharper the required adjustment will be”. 25 The question was how much to stimulate domestic demand, at the cost of exacerbating the imbalances, in order to compensate for weak external demand, and the minutes of the MPC in 2001 and 2002 explicitly discussed the case for accepting inflation below target over the two-year horizon. 26 The Committee rejected the case, and during that period most of the dissenting votes on the MPC were for lower rates (see Table 3). The dilemma, and the MPC’s resolution of it, was summed up by my predecessor Eddie George in 2002 when he said “So in effect we have taken the view that unbalanced growth in our present situation is better than no growth – or as some commentators have put it, a two-speed economy is better than a no-speed economy.” 27 Was that the right choice? As in some other industrialised countries, asset prices, including house prices, had been pushed up by falls in long-term real interest rates (see Chart 7).
A corroborative effort involving both public and private sectors, through a public-private partnership, is key, especially in Asia. This is in light of the large size of risks to be insured, the substantive size of population which needs insurance cover but remains unreachable, and the lack of natural incentives for the private sector to offer sufficient coverage for certain risks. A PPP approach recognizes the different roles as well as limitations of governments and private insurers, and can enable innovative solutions collectively. Public-private financing solutions, such as natural catastrophe insurance pools, micro insurance, and alternative risk transfer solutions such as catastrophe bonds, have the potential to enlarge the financial capacity of insurance solutions, by providing affordable cover to a wider pool. With the expertise and capital  BIS central bankers’ speeches  3  support from international and regional organisations, the public and private sectors can work together in developing purposeful risk transfer solutions for the region. 12. It is encouraging that governments, regulators, industry, academia and international organisations in Asia have already taken initial steps to develop effective PPPs to enhance natural catastrophe risks management. In October last year, for example, the International Finance Cooperation (“IFC”), a member of the World Bank Group, announced a partnership agreement with MAIPARK Indonesia, a specialised catastrophe reinsurer formed by the government and industry, to develop an earthquake-index insurance product to help protect banks that provide loans to individuals and micro, small and medium enterprises from losses due to natural disasters such as earthquakes6.