Financial Crises and Globalisation

Drawing on lessons learnt from an analysis of why Australia was not subject to the same degree of contagion from the Asian crisis as were our near neighbours, this paper looks at what elements of reform to the international economic architecture are desirable and why. These include: wider representation in the economic councils of the world, in part to give more legitimacy to the rules of the game; bailing in the private sector both for equity reasons and to reduce moral hazard as well as to contribute to solving the immediate problem; far reaching prudential rules e.g. restrictions on banks' short term borrowing and on foreign currency denominated borrowing; the possibility of controls on short term capital inflow; and greater transparency with increased disclosure by all major participants including hedge funds.