At the November 1997 Asia Pacific Economic Cooperation Forum (APEC) meeting, President Clinton and the other APEC leaders agreed to hold a series of meetings of finance ministers and central bank governors to address the Asian financial crisis and international financial reform. The meetings began in February 1998 with representatives from 22 countries and observers from the major international financial institutions. The on-going efforts of this group, commonly referred to as the Willard Group or G-22, has helped to identify measures to prevent and better manage financial crises and reform the international financial system.
The ultimate objective of our reform efforts is a stable, resilient global financial system that promotes strong global economic growth providing benefits broadly to workers and investors in all countries. International financial institutions, particularly the International Monetary Fund (IMF), have a critical role to play in this effort by promoting greater openness and transparency, by building strong national financial systems, and by creating mechanisms so that the private sector shares more fully in the responsibility for preventing and resolving crises.
Openness and Transparency:
For capital to flow freely and safely to where it can be used most efficiently to promote growth, high quality information about each economy and investment opportunity must also be freely available. The IMF introduced the Special Data Dissemination Standard (SDDS) in 1996 to improve the information collection and publication practices of countries accessing international capital markets. At present, 45 countries subscribe to the SDDS, but we need to encourage those IMF members who do not subscribe but seek access to international capital markets—particularly emerging market economies—to participate in the SDDS. International financial institutions also have a responsibility to make their activities open and transparent as a means of enhancing their credibility and accountability. The IMF recently has shown leadership in promoting openness and transparency; however, more needs be done in this area.
Financial Sector Reform:
The IMF’s recent review of the Asian crisis experience highlighted the key role played by the domestic financial sector as the flash point and transmission mechanism for the crisis and contagion. Rapid growth and expanding access to international capital had run ahead of the development in countries in trouble of a genuine credit culture to assess risk and channel investment efficiently and of an effective financial sector regulatory and supervisory mechanism. The situation was further exacerbated by inconsistent macroeconomic policies, generous explicit and implicit government guarantees, significant injections of public funds to provide liquidity support to weak institutions, and to some extent capital controls that distorted the composition of capital flows.
Our efforts to reduce the risks of crises caused by poor policy or investor decisions need to be complemented by measures to equip investors, governments and the international financial system with the means to deal with those crises that do occur. The IMF plays the central role in the system by providing conditional international assistance to give countries the breathing room to stabilize their economies and restore market confidence. Two U.S.-inspired initiatives have enhanced the IMF’s role: the Emergency Financing Mechanism, which provides for rapid agreement to extraordinary financing requests in return for more intense regular scrutiny, and the Supplemental Reserve Facility, which enables the IMF to lend at premium rates in short-term liquidity crises and improve borrower incentives. To fulfill its crisis resolution responsibility, the IMF must have adequate resources. We are concerned that IMF liquidity has fallen to dangerously low levels that could impair the Fund’s capacity to respond to renewed pressures and meet normal demands. The Administration is making an intensive effort to obtain the necessary Congressional approval to meet our obligations to the IMF.
Recent crises have brought home that in a global financial market we need to find more effective mechanisms for sharing with the private sector the burden of managing such problems. In a world in which trillions of dollars flow through international markets every day, there is simply not going to be enough official financing to meet the crises that could take place. Moreover, official financing should not absolve private investors from the consequences of excessive risk-taking and thus create the “moral hazard” that could plant the seeds of future crises.
Broadening the Financial Reform Agenda:
In recent years, the IMF has broadened its perspective to take account of a wider range of issues necessary for economic growth and financial stability. It is seeking to create a more level playing field in which private sector competition can thrive; reduce unproductive government spending, including excessive military expenditures and subsidies and guarantees to favored sectors and firms; protect the most vulnerable segments of society from bearing the brunt of the burden of adjustment; and encourage more effective participation by labor and the rest of civil society in the formulation and implementation of economic policies, including protection of labor rights.
The United States and the other leading industrialized nations are also promoting a range of World Bank and regional development bank reforms that the United States has been urging for a number of years. Key elements include substantially increasing the share of resources devoted to basic social programs that reduce poverty; safeguarding the environment; supporting development of the private sector and open markets; promotion of good governance, including measures to fight corruption and improve the administration of justice; and internal reforms of the multilateral development banks (MDBs) to make them more efficient. Furthermore, international financial institutions such as the IMF and MDBs have played a strong role in recent years in countries and regions of key interest to the United States, such as Russia, the Middle East, Haiti and Bosnia.
Enhancing American Competitiveness
We seek to ensure a business environment in which the innovative and competitive efforts of the private sector can flourish. To this end, we will continue to encourage the development, commercialization and use of civilian technology. We will invest in a world-class infrastructure for the twenty-first century, including the national information and space infrastructure essential for our knowledge-based economy. We will invest in education and training to develop a workforce capable of participating in our rapidly changing economy. And we will continue our efforts to open foreign markets to U.S. goods and services.
Enhancing Access to Foreign Markets
In a world where over 95 percent of the world’s consumers live outside the United States, we must expand our international trade to sustain economic growth at home. Our prosperity as a nation in the twenty-first century will depend upon our ability to compete effectively in international markets. The rapidly expanding global economy presents enormous opportunities