## Global Markets and the Global Village in the 21st Century: Are International Organizations Prepared for the Challenge? -- Address by Stanley Fischer

_IMF News, November 19, 1999_

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## Bibliographic details
- Published: November 19, 1999

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### The Global Village
- Key observations and context:
  - Marshall McLuhan coined "global village" almost 40 years earlier in The Gutenberg Galaxy.
  - Telephone cables laid across the Atlantic in 1956 carried 36 simultaneous conversations; today's fibre-optic counterparts carry 10 million conversations.
  - Telecommunications, satellites, computers and fibre-optics are "halving the cost of processing, storing and transmitting information every 18 months."
  - The internet is described as the "market square" of the global village.
  - Estimates suggest 250 million people around the world use the internet already (number rising every day).
- Distributional digital access (selected statistics):
  - By 1995, low-income countries averaged 2.6 telephone lines for every 100 inhabitants, compared to 54.6 in high-income countries.
  - By 1995, less than 2 computers for every thousand inhabitants in low-income countries, against almost 200 in high-income ones.
  - At the end of 1997, 85 per cent of internet users were in just 10 industrialized countries.
  - Flows of investment capital: more than 70 per cent of foreign direct investment in developing countries flowed into just 10 economies.
- Implication:
  - Inclusion in the benefits of globalization is uneven; strengthening understanding and stakes in globalization is needed to sustain support for an open world economy.

### Global capital markets
- Nature of the problem:
  - Capital flows are inherently volatile; recent volatility has been "excessive," causing larger and more frequent crises.
  - Contagion: Russia's devaluation and unilateral debt restructuring transmitted crisis to Latin America.
- Policy prescriptions for emerging markets:
  - Prudent macroeconomic policy as prerequisite: sound public finances and pursuit of low inflation.
  - Exchange rate experience: countries that experienced major external crises in the last two-and-a-half years—Thailand, Korea, Indonesia, Russia and Brazil—all had fixed or essentially pegged exchange rates; countries with more flexible arrangements (including Mexico in 1998, South Africa and Turkey) suffered less severely.
  - Flexible regimes are now more likely choices; if fixed, consider definitive arrangements such as a currency board (Hong Kong or Argentina cited).
  - Capital flow controls: no good reason to restrain inflows of long-term capital, stronger case for market-based controls to restrain destabilizing short-term inflows (Chile example); controls on outflows (e.g., Malaysia) have adverse longer-term consequences and tend to be inefficient.
  - Strengthen banking and financial systems: good bankers, strong supervision, healthy competition (especially from foreign institutions); strengthen corporate governance, auditing and accounting standards; enforce bankruptcy laws.
- Responsibilities of capital-exporting (industrialized) countries:
  - Pursue sustained growth with low inflation.
  - Support Financial Stability Forum conclusions on highly leveraged institutions and offshore financial centers.
  - Reform the Basle capital adequacy standards (noted past distortions: short-term bank loans more profitable relative to long-term ones).
- Role of international organizations and tools:
  - Development and monitoring of international standards and principles (banking supervision, securities regulation, accounting, auditing, corporate governance, fiscal transparency, statistical dissemination, transparency of monetary and financial policies).
  - IMF responsibilities: development of statistical standards; standards for transparency of fiscal and monetary/financial policies.
  - Monitoring chiefly via IMF surveillance and FSSAs (Financial Sector Stability Assessments) with World Bank collaboration.
  - Financial Stability Forum established in April to improve coordination among G7 finance ministries, central banks, supervisory bodies, BIS, IMF and World Bank.
  - IMF strengthening surveillance: closer attention to capital account and financial sector issues, sustainability of exchange rate regimes, debt and reserve management, vulnerability analyses, international aspects of macro policies, cross-country comparisons and regional developments.
  - Transparency incentives: encourage publication of executive board Article IV assessments and pilot project for countries to publish staff reports (Germany published its Article IV for the first time).
  - Contingent Credit Lines (CCLs) offered to countries threatened by contagion—available only to countries with good policies, meeting relevant international standards, sensible external debt management and pursuing private sector credit lines.
- Private sector involvement:
  - Principle: private sector must share appropriately in financing crisis resolutions to avoid implicit official guarantees.
  - Active issue in IMF programs with Ukraine, Pakistan, Romania and Ecuador; evolving strategy toward cooperative solutions when public sector support is insufficient.
- Reform of the international financial architecture:
  - Focused on the 30 or 40 emerging market economies with access to global capital markets.
  - Core elements: greater transparency, standards and monitoring, strengthening domestic policies and financial institutions, increased private sector involvement.

### Trade
- Context and objectives:
  - WTO members (135 countries) to meet in Seattle later this month to begin a fresh round of negotiations to open markets for goods, services and agriculture.
  - Trade has been a main engine of world growth since World War II; rapid exporters have been countries that integrate with the world economy.
- Environmental concerns:
  - Trade liberalization can increase scale of activity and environmental pressures; relationship between income and pollutants is not linear (pollutants often rise then fall as incomes pass a threshold).
  - Trade-induced changes in composition of activity, technological innovation, consumer preferences and government regulations affect environmental outcomes.
  - International challenge: develop rules and incentives to meet environmental objectives without imposing protectionist measures disguised as regulation.
- Labor standards concerns:
  - Core labor standards (ILO Conventions/Recommendations): right to organize and bargain collectively; right to equal pay and treatment for equal work; abolition of forced and child labor.
  - Evidence cited: Dani Rodrik finds no statistically significant relationship between observance of core labor standards and trade performance; weak labor standards do not significantly attract FDI seeking exploitable labor.
  - Argument made that well-treated workers are more productive; strong labor standards should emerge through competition and enlightened self-interest; punitive trade barriers could worsen outcomes.
- Trade and development:
  - Openness to trade and investment linked to faster growth over time; openness facilitates specialization and access to best-practice technologies.
  - For less developed countries to benefit, greater access to markets of richer nations is needed; Seattle negotiations hoped to advance that goal.

### Development
- Core IMF stance:
  - Sound macroeconomic policies and market-oriented structural reforms are vital: price stability, fiscal discipline and structural reform promote growth.
  - Growth is the single most important factor contributing to poverty reduction; low inflation helps foster greater equality of incomes.
  - Structural policies that ease factor and product market rigidities increase supply of essential goods and availability to the poor.
- Complementary policies for poverty reduction:
  - Growth alone is insufficient; policies directly targeting poverty are important.
  - Market reforms should be accompanied by adequate social safety nets to protect vulnerable populations during adjustment.
  - In fiscal retrenchment, protect spending on efficient provision of health, education and social services.
  - Growth-oriented policies and investments in human capital are mutually reinforcing.
- Pace of reform:
  - Experience in transition economies suggests rapid and comprehensive reform is more effective than slow piecemeal approaches; price liberalization and small-scale privatizations were especially important.
- Debt relief and highly-indebted poor countries:
  - 1996 IMF and World Bank initiative to reduce external debt burdens of countries with good policies so debts become sustainable through export earnings, aid and capital inflows.
  - Initial sustainability estimates were too conservative; recognition that debt relief should free resources to pay for essential social needs.
  - Initiative expanded: number of countries likely to benefit increased from 29 to 36 and relief at least doubled to a present value of $27b.
  - IMF contribution through ESAF (subsidized loan window) reformed and renamed the Poverty Reduction and Growth Facility (PRGF) — reflecting recognition of complementarity among macroeconomic, structural and social policies and more systematic cooperation with the World Bank.
- Microcredit and inclusion:
  - Access to credit is important for those left behind by globalization; microcredit is a powerful tool.
  - June survey: responses from 925 microcredit practitioners with more than 22 million clients.
  - Example: Grameen Bank in Bangladesh offered women loans of $350 to buy a telephone and pay for connection and training; "wireless women" became local service providers in rural areas.
  - Microcredit focus on women is highlighted: women are good credit risks and their earnings benefit other family members.
  - Example potential: in Ghana many crop yields could be trebled if access to credit allowed smallholders to exploit available technology.

### Are international organizations prepared?
- Adaptation and institutional change:
  - Over the last decade, the IMF and World Bank made major adaptations in organization, focus and interaction with member countries and the public; the WTO was established in that decade.
  - Institutions have shown willingness and ability to be flexible in response to capital market volatility and the needs of the poorest nations.
- Ongoing responsibilities:
  - Continue improving coordination, transparency, standards, surveillance and collaboration among IMF, World Bank, WTO and related bodies.
  - Recognize and discharge international responsibilities as the "global village" increases interdependence and the cross-border impact of national actions.

*Address prepared for delivery to the Deutsche Gesellschaft fur Auswartige Politik (German Society for Foreign Affairs) in Berlin, November 19, 1999 — Stanley Fischer, First Deputy Managing Director, International Monetary Fund.*

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## References

- [Germany and the IMF](http://www.imf.org/external/country/DEU/index.htm)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [Malaysia and the IMF](http://www.imf.org/external/country/MYS/index.htm)
- [Mexico and the IMF](http://www.imf.org/external/country/MEX/index.htm)
- [Republic of Korea and the IMF](http://www.imf.org/external/country/KOR/index.htm)
- [Russian Federation and the IMF](http://www.imf.org/external/country/RUS/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [The IMF and the World Trade Organization -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2022/imf-and-the-world-trade-organization)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp111999_