Recasting The International Financial Agenda
This paper argues that the agenda for international financial reform must be broadened in at least two senses. First of all, it should go beyond the issues of financial prevention and resolution to those associated with development finance for poor and small countries, and to the “ownership” of economic and development policies by countries. Secondly, it should consider, in a systematic fashion, not only the role of world institutions but also of regional arrangements and the explicit definition of areas where national autonomy should be maintained. These issues should be tabled in a representative, balanced negotiation process. In the area of financial crisis prevention and resolution, a balance must be struck between the need to improve the institutional framework in which financial markets operate and the still insufficient attention to the design of appropriate schemes to guarantee the coherence of macroeconomic policies worldwide, the enhanced provision of emergency financing during crises, and the creation of adequate debt standstill and orderly debt workout procedures. In the area of development finance, emphasis should be given to the need to increase funding to low-income countries. The role of multilateral development banks in counter-cyclical financing – including support to social safety nets during crises – must also be emphasized. The enhanced provision of emergency and development financing should be accompanied by a renewed international agreement on the limits of conditionality and a recognition of the central role of the “ownership” of development and macroeconomic policies by developing countries. Regional and subregional institutions should play an essential role in the supply of “global public goods” and other services in international finance. The required financial architecture should in some cases have the nature of a network of institutions that provide the services required in a complementary fashion (in the areas of emergency financing surveillance of macroeconomic policies, prudential regulation and supervision of domestic financial systems, etc.), and in others (particularly in development finance) should exhibit the characteristics of a system of competitive organizations. The fact that any new order would continue to have the characteristics of an incomplete “financial safety net” implies both that national policies would continue to play a disproportionate role in crisis prevention and that certain areas should continue to be realms of national autonomy, particularly capital account regulations and the choice of exchange rate regimes.
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