New Ways Eyed to Deal with International Economic Crises - A Commentary

April 26, 1999

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A Commentary
By Jack Boorman
Director of the International Monetary Fund’s
Policy Development and Review Department

The Boston Globe
April 26, 1999

Reproduced with the permission of The Boston Globe

It is perhaps in the nature of our media-conscious age that policy debate inevitably is reduced to phrases that fail to capture the meaning of the issues at stake. Such has been the case in recent months with ''the new international financial architecture,'' a term that seeks to encompass the reform process sparked by the economic crises of the past 21 months.

The events that began in Asia and then spread to Russia and Brazil underscored one of the principal challenges of the new millennium: How do we continue to reap the benefits of global financial markets even as we make the world less vulnerable to devastating crises?

The international community is grappling with this complex challenge through a multifaceted reform program. The International Monetary Fund and other international institutions and regulatory bodies have been preparing an array of proposals. Some are ready for implementation. Others need further study or the guidance that only ministers or heads of state can impart. Additional important steps are likely to be taken when the IMF's ministerial-level interim committee meets in Washington tomorrow.

The reform agenda focuses on two essential themes: We are seeking the means to prevent crises by devising new ''rules of the road'' that will help governments and businesses make their way smoothly through the global marketplace. Second, if crises arise, ideally, there will be systems in place to ensure that the contagion can be contained and the human costs limited.

Reforms aimed at crisis prevention focus on better information and stronger safety standards to allow markets to function more smoothly. Some commentators have said the crises in Asian economies could have been avoided - or at least moderated - if there had been knowledge of the size of private-sector foreign debt and the rapid depletion of foreign-currency reserves.

At its core, the new global financial system must incorporate concepts of good governance, openness, and accountability - in both the public and the private sectors. This requires governments to conduct economic policy and financial sector regulation in a way that allows all market participants equal access to accurate information about the rules of the game. In addition, the business community must adhere to internationally recognized standards of accounting, reporting, and auditing and must act according to accepted standards of corporate behavior. These priorities are only means to an end, which is to ensure that countries are equipped with the necessary framework for sustainable and equitable economic growth.

Work on developing or rewriting international standards is being done through a consultative process that involves many different institutions, each taking the lead in its area of primary competence. The IMF has focused on encouraging and assisting countries to implement a code on transparency of budget policies adopted last year. It also has circulated a draft code for transparency of monetary and financial-sector policies.

Beyond defining and refining international standards, implementation presents additional challenges. Many countries will need new laws, institutions, and trained professionals to apply these standards.

The IMF is expanding its advisory services, and the international community should provide increased technical assistance. Work is also advancing on strengthening the financing side of crisis prevention and resolution. The fund is identifying ways for countries to ensure access to additional financial resources from both private and public sources during periods of market turbulence and devising strategies for the private sector to participate fairly and systematically in resolving future crises.

Although the reform agenda largely focuses on financial issues, prominence is also being given to policies that do not fit under that umbrella. For example, one of the most important lessons of the crises that hit Asia is a reminder of the need for adequate programs to help the poorest members of society. There is a broad consensus that there must be a renewed commitment to strengthening social safety nets in countries facing economic shocks and in those that have made progress on the road to prosperity.

Some of the reforms under consideration might be put in place without fanfare; others may provoke controversy. What is certain is that they will require a serious commitment if they are to be implemented effectively and thus to forestall future crises.

[The writer contributed this article to The Boston Globe.]