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CIAO DATE: 03/02
Volume 3, Number 4, August 1998
Preface
In the 1990s financial markets have become truly global, a development that offers both great promise and great peril.
Countries throughout the developing world and the former communist bloc have embraced the market-based policies of the industrialized nations of the West, a change that has brought extensive privatization of state-owned banks and companies, the creation of new stock and bond markets, and the opening up of economies to all kinds of foreign investment and foreign capital.
But successive and severe financial crises in countries that were thought to be performing well and that were attracting considerable amounts of private foreign capital have cast a shadow over the new global financial system. First there was the crisis in Mexico in 1994-95, and now in Asia. Financial turmoil threatens other countries as well.
These crises revealed severe deficiencies in the financial systems of individual countries and in the world financial architecture itself.
At the Group of Seven (G-7) industrial nations summit in Birmingham, England, in May 1998, the leaders called on their finance ministers to develop new approaches for strengthening the global financial architecture, with particular emphasis in four areas: increasing transparency of countries' data and economic conditions, helping countries prepare for global capital flows, strengthening national financial systems and ensuring that the private sector takes responsibility for its decisions when crises strike.
This issue of Economic Perspectives looks at the proposals to reform the global financial architecture.