CIAO DATE: 07/02

Strengthening the International Financial Architecture: Where Do We Stand?

Abstract

It’s not easy to get senior economic officials worked up about the functioning of the international monetary system. Usually, they are preoccupied with the more immediate issues surrounding the national and global economic outlook. But the Mexican peso crisis of 1994-95 and, even more so, the Asian financial crisis of 1997-98 made crisis management important for the economic outlook and pushed many of the otherwise arcane issues in the so-called “international financial architecture” (hereafter, IFA) to the front burner of economic policy.

In this paper, I provide a preliminary assessment of where we now stand with respect to strengthening the IFA. Because the IFA covers such a wide subject area, it is necessary to be selective in a short paper. Here, I have used the lending policies and practices of the IMF as a convenient organizing device to discuss selected key issues in the reform debate. More specifically, Section II looks at the interest rate and maturity of IMF loans. Section III focuses on the size of IMF rescue packages. Section IV, which covers the most ground, examines various dimensions of IMF conditionality, including ex post macroeconomic policy conditionality versus pre-qualification based on structural policies, the scope of IMF conditionality, the roles of currency-regime choices and private-creditor burden-sharing in conditionality, and links between Fund assistance /conditionality and implementation of international financial standards. Finally, in Section V, I offer some concluding remarks on priorities for IFA reform over the next year or two.

Full text (PDF format, 37 pages, 190.6kb)