IMF seeks stronger mandate for capital movements

IMF seeks stronger mandate for capital movements

By Vincent Lingga

HONG KONG (JP): While many developing countries fear the great
pains incurred by the financial crisis in Southeast Asia since
July, the International Monetary Fund is pushing hard for a
stronger mandate to promote capital movements in the world.

The IMF's top policy making body, known as the Interim
Committee, is fine-tuning specific recommendations on key
elements of an amendment to the IMF articles of agreement which
will grant it jurisdiction over global flows of private capital.

"That is one of the agendas being discussed by the Interim
Committee," IMF Managing Director Michel Camdessus told a press
conference on the upcoming annual meetings of the IMF and World
Bank starting here Monday.

IMF, Camdessus said, can help countries promote an orderly
liberalization of capital flows to prevent chaotic
liberalization.

Other topics to be discussed at the meetings include exchange
rate arrangements, Asian capital markets, globalization of
the financial market, banking and financial reform, second
generation reforms, IMF financial quota arrangements and the
Special Drawing Rights (IMF reserve assets).

The meetings will convene amid the currency turmoil affecting
several Southeast Asian countries, notably Thailand, the
Philippines, Malaysia and Indonesia.

"In this increasingly integrated global economy and financial
market, you no longer have the right to make mistakes," Camdessus
said, referring to Southeast Asia's currency crises.

Camdessus said the IMF's 181 members have in principle agreed
on the need to liberalize capital accounts with the understanding
that there will be flexible transition arrangements for
countries.

IMF and the World Bank believe private capital flows play an
increasingly vital role in boosting economic growth in the
emerging markets, especially in view of the declining official
capital flows such as government aid.

Last year, for example, private capital flows to developing
countries quadrupled to US$255 billion from $57 billion in 1990
and these funds have contributed greatly to spurting economic
growth in the leading emerging markets, according to IMF.

IMF deputy managing director Shigemitsu Sugisaki agreed that
the currency turbulence in Southeast Asia should not change the
favorable judgment that private capital flows have greatly helped
emerging markets achieve high growth and increase living
standards.

"However, recent developments in this part of the world have
taught us that integrated financial markets can involve large
costs to countries which pursued policy inconsistencies and
structural weaknesses," Sugisaki said.

Sugisaki said IMF did not want to push for premature capital
account liberalization because this should be appropriately
sequenced with economic stabilization measures and structural
reforms to strengthen the financial system.

The World Bank has also stressed the vital importance of a
sound financial system in the current globalization era.

"The penalties of maintaining a fragile, underdeveloped
financial system are severe," said World Bank vice president for
the East Asia Region Jean-Michel Severino.

The need for a sound and strong financial system is one of the
strongest messages in the latest IMF and World Bank reports
concerning the financial turbulence in Southeast Asia.

The reports warn that a country with a relatively primitive
financial system which wants to plug into the high-voltage global
capital market to raise needed investment is surely in for a
nasty shock.

The currency crisis has been so important that financial
leaders from around the world will join IMF and World Bank
executives in a seminar here Sunday to discuss banking and
financial reforms.

The seminar will discuss reports by the Basle Committee of the
Bank for International Settlement on new core principles of
banking supervision and by the Group of 10 developed countries on
financial stability in emerging markets.