FACT SHEET: WHITE HOUSE ON WORLD FINANCIAL SYSTEM
(U.S. urges reforms in global financial architecture)
Birmingham -- The White House issued on May 15 a Fact Sheet outlining the U.S. proposals for strengthening the world financial system architecture.
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STRENGTHENING THE ARCHITECTURE OF THE INTERNATIONAL FINANCIAL SYSTEM
G-8 SUMMIT IN BIRMINGHAM
May 15, 1998
Over the last 10-15 years, dramatic changes in the Global Economy and global financial markets have presented enormous opportunities for workers, farmers, and businesses in the US and around the world.
Increased flows of trade, capital, information, and technology have brought tremendous benefits in the United States through increased exports, move high-paying jobs, and lower inflation. At the same time, developing countries have played increasingly more important and vital roles in the global economy. Those countries now absorb more than 40 percent of American exports.
However, this new era brings not only potential, but also new challenges and risks.
The financial crises in Asia demonstrate how financial sector flaws in a few developing countries and inadequate risk assessment by international creditors and investors, can have a significant impact on economies around the globe. How effectively the international community meets these challenges and manages the risk will have an enormous impact in the years ahead on our economic well-being and the economic well-being of all countries.
In Responding to these challenges, America has three clear goals:
First, to promote broadly shared growth in both the developed and developing world; second, to be better able to prevent future crises; and third, to deal with any crises when they occur.
Today, the leaders of the G-7 endorsed actions in key areas to strengthen the architecture of the international financial system.
Four years ago, the United States began the effort to strengthen the architecture of the international financial system at the Naples Summit. Working with the other members of the G-7, the first concrete steps were launched the following year at the Halifax Summit after reviewing the lessons of the financial crisis in Mexico and the history of international financial institutions since the Bretton Woods agreement in 1945. More recently, the United States have convened a special meeting of 22 finance ministers and central bank governors hosted by Secretary Rubin and Chairman Greenspan which followed up on President Clinton's pledge at the Vancouver APEC Summit in 1997 to consider the implications of the Asian crisis. Today, the leaders endorsed the following actions:
(1) Providing better information through improved disclosure and transparency.
-- Encourages countries to improve information on the external liabilities of both the public and private sectors. The leaders endorsed the idea that the IMF should require countries to provide a complete picture of usable central bank reserves, including any future liabilities, foreign currency liabilities of the commercial banks and indicators of the health of the financial sector.
-- To get better, broader, and more timely data on external lending to a country, the Bank for International Settlements (BIS) will expand reporting on cross-border bank flows. Governments and international financial institutions (IFIs) also need to make this data more easily accessible to investors, particularly through the Internet.
-- Encourage the IMF to make its analyses and lending conditions more transparent with more frequent and regular publications of its documents, analyses and letters of intent. It is important to help inventors reach an informed judgment and the IMF can play a critical role by making information public.
-- Need to increase incentives for countries to improve transparency. The leaders encouraged the IMF and other IFIs to publicize their concerns about important gaps in countries' disclosure and consider conditioning access to loans on countries' willingness to improve their transparency.
(2) Building strong national financial sectors.
-- Encourages the development of a more complete range of global standards and create incentives for adoption and implementation. These standards will guide individual governments' efforts in areas that affect the underlying strength of the financial system, including supervision of securities firms, bankruptcy regime, accounting and disclosure, loan classification, overall corporate governance, credit risk management.
-- Provide for multilateral surveillance of countries' financial regulatory and supervisory systems, just as the IMF now carries out surveillance of macroeconomic policies. Enhanced surveillance in this area will help encourage national authorities to meet international standards and take early corrective actions.
(3) Creating mechanisms so that the private sector more fully bears the consequences of its credit and investment decisions.
The recent crisis in Asia has shown that it is important to define an appropriate private-sector role in financing the resolution of the crises.
-- Encourage stronger domestic bankruptcy laws and institutions covering debtor-creditor relations. This means business failures have a better chance of being resolved quickly and with less impact on the broader economy.
-- Encourage governments to reduce the scope of formal guarantees to create a more healthy and competitive environment. This implies that corporate debt will not be protected, and where appropriate, banks will be allowed to fail.
-- Promote new, more flexible forms of debt agreements and contracts. This provides a framework for direct negotiations between creditors and investors.
-- Encourage the IMF to continue to provide financing even when countries may be behind on debt payments to some private creditors. This will facilitate a situation in which debtors and creditors will work things out themselves.
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