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.