Camdessus Discusses New Global Architecture, Ways to Strengthen Political Accountability

• Pages: 157-163

Page 157

As in the days of the Industrial Revolution, we are now at a defining moment of human history. The question before us is straightforward: how to utilize the full potential of globalization to improve the living standards of all-particularly the poorest-while containing the risks it entails, such as those we have seen materialize so brutally in Asia, and those at least equally pernicious, even if less spectacular, of the continuous marginaliza-tion of the poorest countries. What kind of new architecture of the global system could achieve this?

The response must be deduced from a proper analysis of the most recent crises. Contrary to what we saw during the debt crisis of the 1980s, the problems in Asia were not almost exclusively macroeconomic in nature; by and large these economies had long track records of successful economic management. In a context dramatically changed by a major realignment between the dollar and the yen, and important differences in short-term yields, three other factors helped trigger the crisis: the weakness of public and private banking and financial structures; an unsustainable accumulation of short-term financing-particularly of interbank lending-which made countries Page 161 particularly vulnerable to a sudden shift in market sentiment; and, last but not least, deep-seated problems of governance, corruption, and what U.S. commentators call "crony capitalism."

We have tried to deal with these major factors in Thailand, Korea, and Indonesia, and they will have to be taken into consideration in the future in whatever efforts are undertaken to avoid the recurrence of crises. But that will not suffice. There are calls for us to do a better job of predicting and preventing crises, addressing their social impact more effectively, stopping speculators and properly regulating this "casino economy," seeing to it that investors bear the full costs of their mistakes, stabilizing the international monetary system, providing for more political accountability of our institution, and so on.

We cannot deny the basic justification of these calls for change. World public opinion expects its leaders to design and build a new, common house with an audaciously modern architecture, and not limit themselves to some plumbing and interior decorating of the old mansion.

Seven Building Blocks

As responsible architects, let us start by recognizing the seven substantial building blocks that are at hand:

- The tremendous potential for growth and prosperity that globalization provides to countries that fully integrate into the global economy. The remarkable sources of dynamism are there, engendered by new information technologies and unifying financial markets. The question, then, is how to discipline and channel these forces so that growth will be sustainable and more broadly shared, and the fundamental desire for greater equity will be more fully satisfied.

- Integration. By integrating into the mainstream of the globalizing world economy, the poorest countries will avail themselves of a most powerful instrument for accelerating development. Not to do so would expose them to the risks of marginalization.

- The importance of an increasingly open and liberal system of capital flows for globalization to deliver on its promises.

- The "golden rule" of transparency-the key for modern management, economic success, and rational behavior of global markets.

- Good governance, which is equally essential for strong economies and properly functioning democracies.

- Standards and codes of best practices. The global markets still suffer from the kind of anarchy that afflicted Europe's domestic financial markets until various scandals and crises led to the creation of securities and exchange...