Poverty and Development Division
last updated : 27 April 2000
In the field of global surveillance and monitoring, international financial institutions such as BIS, IMF and the World Bank have taken the lead in devising new instruments, processes, codes and standards, policy analysis and options, geared to minimize the risk of new crises as a part of the broader framework of the new financial architecture. The task of disseminating the findings, policy studies or new processes presents several avenues for regional cooperation between the countries of Asia and the Pacific and these institutions.
One modality for complementing the new initiatives of multilateral institutions is to engage them in smaller meetings with groups of interested countries in the region. This arrangement would facilitate enhanced interaction between the institutions which draw up the blueprints for new processes such as codes and standards etc. and the target audience in the emerging markets. It would present a very good opportunity for the international financial institutions to disseminate new initiatives as well as receive feedback from developing countries. The modality for such meetings could be holding seminars at the fringes of regular meetings of the institutions at their headquarters, or conducting seminars in the region with the active involvement of their headquarters or regional offices. For instance, SDDS is currently the best practice system for gathering data and information. However, it imposes considerable demands on human, financial and technical resources in developing countries. The proposed modality could be considered an avenue for exchanging information among users and IMF on problems and potential solutions.
Another example concerns BIS. While IMF and the World Bank are currently promoting BIS Core Principles for Effective Banking Supervision, it would seem useful to have more direct interaction between BIS on its thinking and research, and representatives of countries not party to its deliberations. Meetings could be organized between BIS and regulators in the region focusing on regulatory issues and taking into account regional viewpoints and features.11 Further, as BIS has long experience in conducting discussions on surveillance, it could assist by holding demonstration discussions among countries in the region, illustrating their procedures, inputs and outputs.
If it is desirable for the developing economies to be actively involved and integrated into the evolving new structure, then why not simply engage these developing economies directly in the regular processes of the institutions beyond IMF and the World Bank? For example, why not encourage central banks from developing countries to become members of BIS? There are at least two major difficulties with such a proposal. One is that the conditions and costs of membership may not be within the realm of feasibility or not generate sufficient return for many developing countries. Second, as the membership of an institution increases, the process of informal consultation becomes more unwieldy and points of conflict are magnified; there is a tendency for the frank exchange of views to be stymied as the number of participants increases. Thus there is a need for another formula to find a balance between not expanding the membership and increasing the degree of involvement of developing countries.
The above is important because the danger of not engaging the emerging markets in the formulation of crisis-prevention initiatives is weak ownership. The emerging markets (which presumably are more crisis-prone than other developing countries that are less well integrated into the global economic and financial system) are not adequately represented in the decision-making processes of the existing mechanisms. Hence, there is generally weak ownership by their concerned authorities. For instance, most of the activities of BIS are concentrated on the G-10. The inclusion of emerging countries and areas such as Brazil; China; Hong Kong, China; India; Mexico; Republic of Korea; Russian Federation; Saudi Arabia; and Singapore into BIS in 1996 was a step towards recognizing the importance of developing economies in the global financial system. It is not clear, however, how influential these new members are in the decision-making process. For instance, there is no representative of the emerging markets on the Board of Directors. A general concern arising from this governing structure is that specific regional concerns (which involve mainly developing economies) may not be adequately considered by international institutions.
The impact of this situation is likely to rebound on the policy decisions of the authorities. Weak ownership of the process can compromise the quality of cooperation of the parties concerned. This has repercussions on the timely and accurate provision of data as well the willingness of the policy makers of a region to engage in a frank exchange of views and opinions. Their qualitative judgements are important; it is generally accepted that a good reading of the prospects depends crucially on qualitative assessments, not simply on quantitative templates.
Yet, it is important for countries to be aware of the transparency requirements they need to meet; to be familiar with and not afraid of the international standards and how to meet them; how to use data in order to construct measures of their degree of vulnerability as well as that of their neighbours; to know the range of policy options available in the presence of shocks; and to be conversant with new technologies in surveillance and monitoring. These can be regarded as support that can be drawn from the considerable core expertise of international financial institutions. In effect, the proposed meetings could provide an effective and efficient modality for emerging markets to take advantage of the research and policy analysis capacity and outputs that these institutions possess.
The building of modern and robust economic and financial systems in developing countries is a daunting task. Effective regional consultations on the progress would benefit from quality policy and analytical support. Even the G-7 consultation mechanism, which is rather informal, involves careful preparation and draws on the expertise of IMF, BIS and OECD, apart from the policy analysis capabilities of the developed countries themselves. To be of any value, policy support must accomplish two things. First, it must improve the ability of policy makers to identify the policies that will make their economies more resilient against shocks and suggest ways and means of identifying and responding to shocks in an appropriate and timely fashion. Second, it must encourage the policy makers to make the hard choices necessary to make the financial and economic systems more robust.12 The proposed meetings potentially can highlight the policy support that the international financial institutions could extend. This modality fits quite well within the format of the Bretton Woods and United Nations institutions; in addition, BIS has informally signalled its willingness to be involved in the type of process described above. It would be a natural follow-up to the regional conference which it organized in Asia.
There exists at present at least one concrete example of this modality: the Manila Framework meetings. There are now biannual meetings among the concerned officials of the Manila Framework group to discuss informally the regional economic situation, progress in reform and recovery and any other topic of interest. IMF has been backstopping this process and ADB is also now involved. As this process involves both developed and developing countries and is focused on Asia, it can be considered a useful new approach to surveillance. However, it involves only a limited number of the economies of the region and its inputs and outputs are not made public, apart from an agreed press release after the meeting.
An interesting variation of this modality has been tried by IIF as a way of involving the private sector. This approach involves replicating the holding of private-official dialogues in which briefings were given by senior Finance Ministry and Central Bank officials of Mexico (and other countries) for representatives of foreign banks, equity investors, asset managers, pension funds etc. in order to inform them about the most recent economic and financial developments and to engage in an informal exchange of views. Building on this experience, IIF has suggested that developing economies that have a significant involvement with international financial markets should undertake such interaction on a more systematic basis.13 The aim would be to build up foreign private sector confidence in a developing economy, which is important for stimulating investment as well as maintaining financial stability.
11 There is a similar proposal in Stephany Griffith-Jones with Kenny Kimmis, "The BIS and its role in international financial governance", in UNCTAD, International Monetary and Financial Issues for the 1990s, vol. XI (United Nations publication, Sales No. E.99.II.D.25), pp. 27-49.
12 Manzano and Moreno, "Supporting regional consultations..."
13 Montek S. Ahluwalia, "Key issues in reforming the global financial architecture", paper submitted to the Commonwealth Finance Ministers Meeting, Commonwealth Secretariat, Cayman Islands, 21-23 September 1999.
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