Camdessus Speech to Council of Europe: Asian Crisis Intensifies Need for A New Global Architecture

• Pages: 208-210

Page 208

The world is at a dangerous crossroads. Once again, we are the witnesses both of the benefits of globalization-a huge pool of resources for investment and the growth of well-managed countries-and of its risks: financial instability, crises, and the marginalization of countries that are unable to join this powerful current of world economic unification. A world of promise, but a dangerous world!

What Went Wrong in Asia?

We have all admired the "Asian miracle" based on saving, prudent fiscal policies, investment in physical and human capital, and the liberalization and opening up- albeit in unequal measure-of economies. The results are there to see, particularly in terms of a reduction in extreme poverty. But there was a dark side, and the lesson from this crisis is that in a globalized economy a few macroeco-nomic virtues are not enough. Constant vigilance must be maintained over all the socioeconomic parameters; yet in each of these countries, there were lapses. The soundness of the banking system in particular must be monitored at all times; yet, here too, these countries failed, and, what is more, their unsustainable accumulation of short-term financing made them vulnerable to swift changes in market sentiment. Finally, countries must take great care to ensure that their affairs are conducted in an irreproachable and transparent manner and that all forms of corruption, nepotism, and favoritism are shunned; yet, over time inPage 209 Asia, these afflictions took hold and overpowered systems that were otherwise remarkably successful.

What Is the IMF Doing to Contain the Crisis?

As soon as it was called upon-unfortunately, typically, too late-the IMF helped Indonesia, Korea, and Thailand formulate, and adapt as necessary, reform programs aimed at restoring investor confidence, reestablishing access to international capital markets, and reversing excessive currency depreciation. These programs go far beyond restoring the major fiscal, monetary, or external balances. Their aim is to strengthen financial systems, improve governance and transparency, and restore economic competitiveness through, for example, the elimination of monopolies and the modernization of the legal and regulatory environment. To ensure the success of these efforts, we have marshaled an unprecedented volume of financial support. And in varied ways...