Asian Crisis Forces World Bodies To Expand Agenda

The Asian flu has prompted leading international institutions to expand their agendas, ask for more funds, and coordinate their actions better than in the past. Representatives of the United Nations, World Bank, IMF, WTO and the OECD gathered here at Davos feel that the issues thrown up by the Asian crisis relate to questions of governance, transparency, accounting and auditing procedures, the strength of regulatory systems and the work of rating agencies.

UN secretary general Kofi Annan said the UN was already engaged in discussions with the other bodies on the full range of issues that had been thrown up recently.

 

Stanley Fischer, first deputy managing director at the International Monetary Fund, felt that the issues thrown up concerned transparency and general governance. He said there was a need for tighter international monetary, trading and supervision systems.

However, he said one problem was how to share with the market confidential information gleaned from the IMFs system of annual reviews and the various ways of making national responses effective in the event of an international warning?

Fischer felt that within countries there was a need for stronger financial regulation and control, as also stricter accountancy standards and bankruptcy laws. However, he added that better information and supervision would not prevent crisis, so one also needed crisis mitigation mechanisms, like financial help when the markets turn against a country. This meant giving more funds to the international organisations and also working out ways to bring in the private sector.

Fischer added that the central problem was how to tackle the problem in one country without allowing it to hit other economies, and the best ways to mitigate the social consequences of disruption.

Sven Sandstrom, managing director of the World Bank, argued that an extensive system of international institutions already existed, and the challenge was to make them more effective, not create new ones, and that the issues arising from the recent crisis lie more in the area of governance.

Sandstrom argued that there had to be transparency in three separate sectors; political, financial and corporate. The problem in East Asia was that there was not enough information on some of these sectors, so there was a need for greater surveillance at the microlevel. The World Bank was already working with 12 countries on judicial reform, another 12 countries on anti-corruption and transparency programmes, and with between 25 and 30 countries on civil service reform.

He felt that work would also need to start with many member-countries on accounting and auditing procedures, and on the creation of social safety nets. This area of work was the banks fastest growing portfolio, he said, while a special unit was being set up to deal with the financial sector.

Renato Ruggiero, head of the World Trade Organisation, said national politics was based on national considerations while economics was increasingly driven by International factors; and the gap between these two created the problem of global governance. He argued in favour of more linkages between the international institutions and governments, and with civil society, and also with national legislators.

Ruggiero emphasised that the world had become truly globalised and interdependent, and cited the fact that would trade as percentage of global GDP had increased from 7 per cent in 1950 to 23 per cent today. In this context, international relations had to be rule-based, not power-based, and he took heart from the fact that in 1997 the international community had worked out path-breaking agreements in the fields of telecommunications, financial services and intellectual property.

Annan mapped the range of work done by international institutions as covering everything from technology standard-setting (as in aviation or telecommunications) to nurturing human rights and democracy, and from eradicating poverty to codifying international law in areas like tapping sea-bed resources.

Finally, he said, there were peace-keeping operations and the need for dispute settling mechanisms. He added that while markets need equity and transparency, major stakeholders were not at the table and were not being heard.

In another session, economist Rudiger Dornbusch agreed with the general view that the Asian crisis had less to do with issues of global capitalism (on which financier George Soros has been dwelling over several sessions at Davos) and more with issues thrown up by crony capitalism.

That view, and the issues highlighted by Fischer and Sandstrom, drew the response from the OECDs secretary-general that the OECD should look at not just economic issues but also at the broader issues of governance especially when looking at admitting new members (South Korea is the newest entrant in the OECD).