REFORMING THE INTERNATIONAL FINANCIAL ARCHITECTURE:

EMERGING MARKET PERSPECTIVES

Organized by the Institute for Global Economics (IGE) and

Korea Institute for International Economic Policy (KIEP)

At the Shilla Hotel,

Seoul, Korea, November 9-10, 2000

<CONFERENCE SYNOPSIS>

The painful lessons learned from the emerging market crises since 1997 raise the question of the adequacy of the current global financial system, and awaken interests in rethinking and redesigning the international financial architecture. Several reports on reforming the international financial architecture have been produced by academics, policy makers, and financial experts. They include the G-7 Finance Ministers Report, the Meltzer Commission report, Task Force Report sponsored by the Council on Foreign Relations, and the Financial Stability Forums recommendations.

However, these reports and recommendations are frequently criticized because Non-G-7 views, emerging market views in particular, are not fully recognized, and the emerging markets still remain more vulnerable to the global financial systemic risks. In order to reach a global consensus on the issues related to reforming the international financial architecture, more active participation in the discussion by the Non-G-7 countries is required, thereby contributing to the international financial community. In addition, it is desirable to harmonize and develop Non-G-7 views. Then, we may expect that emerging market perspectives can be more adequately incorporated in the continuing process of designing the international financial architecture.

To implement this goal, the Korea Institute for International Policy (KIEP) and the Institute for Global Economics (IGE) in Korea will jointly organize this international conference on Reforming the International Financial Architecture: Emerging Market Perspectives. The important goal of this conference is to discuss major issues related to the current international financial system, and to identify whether the current existing proposals are adequately designed to prevent future crises and their contagion, primarily from the point of view of Non-G-7 countries. Researchers and experts on these subjects have been invited to present their own ideas and suggestions. This conference, which comprises four sessions (eight papers), will provide comprehensive policy recommendations of Non-G-7 countries. Furthermore, it is expected that the concerted opinions will provide effective policy implications and suggestions to the international financial community.

SESSION I: DISCUSSIONS ON NEW INTERNATIONAL FINANCIAL ARCHITECTURE

This session will cover the various aspects of recent discussions on the new international financial architecture. It will provide an overview and evaluation of the current existing proposals on the reform of the international financial system.

Paper 1: The International Financial Architecture: Issues and Propositions

Stephany Griffith-Jones, Commonwealth Secretariat

The aims of this paper are to summarize and critically evaluate various global initiatives for crisis prevention, management, and resolution. It will also consider the global politics in coping with the crises and discuss the necessity for more sweeping reform on the international financial architecture. This paper also presents how to prioritize various reform agenda. Under-representation of emerging market economies and developing countries in the process of international financial architecture reform will be seriously examined and a possible and feasible gateway to fix this problem will be constructively proposed.

SESSION II: CAPITAL ACCOUNT LIBERALIZATION AND ITS CRITIQUE

Crisis prevention proposals since the Asian crisis cover a wide area of economic policy and institutional development. Among them, many have focused on excessive short-term capital flows into emerging market. Related to this, stable flows of capital and appropriate exchange rate arrangements have become an important policy decision for emerging market economies. The capital flows and exchange rate regime are closely interrelated since the choices of capital account liberalization heavily influence the choices of the exchange rate arrangement as the international financial market has become more integrated. On the other hand, the regulation and prudential measures for highly leveraged institutions will be also discussed in line with stable capital flows in emerging markets.

Paper 2: Seeking for Appropriate Exchange Rate Regime,

Yunjong Wang and Doo Yong Yang, KIEP

This paper will discuss the general assessments on the exchange rate arrangement in emerging market economies as well as developed countries. The choice of exchange rate regime is considered one of the critical elements in the new international financial architecture. It has been argued that soft-peg exchange rates are prone to invite crisis. The two polar extreme choices are highly recommended, such that emerging market economies should choose between a fully flexible exchange rate regime and a hard fixed regime based on a credible institutional arrangement, such as currency board or even dollarization. The question is whether two polar solutions are the only options for emerging markets. This paper will explore the issues related to financial market integration and the exchange rate arrangement. Furthermore, the G-3 exchange rate fluctuations are also pointed out as an important source of vulnerabilities in the international capital markets. Various proposals for maintaining stable G-3 exchange rates are also examined.

Paper 3: Managing Stable Capital Flows: Capital Controls and Sequencing of Capital Account liberalization

Ricardo Ffrench-Davis, Naciones Unidas

After the Asian crisis, there is growing concern that the liberalization of capital flows can subject emerging market economies to the risk of abrupt capital outflows due to macroeconomic imbalance as well as a contagion effect. This raises the issues of whether emerging market economies should implement some capital controls over capital flows into emerging market economies. For a country level, market-based restrictions on capital flows, such as the Chilean type, can be an important policy issue. On the other hand, the capital control at the time of crisis is also an important issue to discuss. In line with this, the sequencing of capital market liberalization brings an important, but difficult choice for countries that have not liberalized their capital market. These issues will be examined in this paper.

Paper 4: Regulatory Challenges: Restrictions on Highly Leveraged Institutions,

Gordon de Brouwer, Australian National University

This paper will discuss some problems created by highly leveraged institutions, so called hedge funds in light of the excessive capital market turbulence. Regulations and prudential measures proposed by various groups such as the Basle Committee, the US President Working Group on Financial Markets, and the Financial Stability Forum on highly leveraged institutions will be examined from an emerging market perspective. This will impact on the behavior of market participants in a way that is likely to reduce incidence of herding and speculative attack. This paper will also explore an appropriate form of controls on highly leveraged institutions, whether direct controls on HLI (strengthening regulations on HLI) or indirect controls (disclosing information on cross-lending and derivative transaction) are to be implemented at the global level.

SESSION III: BUILDING INFRASTRUCTURE FOR NEW INTERNATIONAL FINANCIAL ARCHITECTURE

This session will cover the important limitations on the current international financial system. The international community has an important role to play in reducing vulnerability to crises by ensuring that appropriate international standards for regulation and supervision are met, and that financial market participants and the public more generally have the information. In addition, this session will cover the issue of reforms on international financial institutions to prevent and resolve crises. Reform issues related to the current international financial institutions (IFIs), including the IMF and the World Bank, will be critically examined in light of emerging market economies and developing countries.

Paper 5: International Standards and Regulations

Tan Khee Giap, Nanyang Technological University, Singapore

This paper will discuss the issues on implementing international standards and regulations. The questions on what are the acceptable international standards and how to effectively enforce those standards will be explored. To accomplish this, it is important to discuss why and how the internationally acceptable standards and codes will increase the strength of the financial markets. In addition, it is also crucial how to proliferate international standards and regulations to the emerging market economies. In other words, incentives for emerging market economies are so important to the implementation of internationally acceptable standards and regulations as well as to achieve more participation by emerging market economies. However, considering the limited resources and institutional backwardness, the adjustment costs will be sometimes unbearable. In a more balanced way, the costs and benefits of international financial standards and codes will be examined in light of emerging market economies and developing countries.

Paper 6: Reforms on International Financial Institutions

Robert A. Blecker, American University

This paper will explore the issues regarding the reforms of international financial institutions, such as the IMF. What are the adequate functions on international financial institutions in order to prevent and resolve crises? There is a growing interest that the IMF should enhance its role of international lender of last resort. On the other hand, some argue that the smaller role of the IMF produces less moral hazard problems on international lending. This paper will present an overview of the reforms on international financial institutions, and will provide their implications to emerging market economies and developing countries.

SESSION IV: PRIVATE SECTOR INVOLVEMENT AND SOCIAL POLICIES

This session will cover the issues on private sector involvement as a crisis prevention and resolution mechanism and social aspects of the new international financial architecture regarding poor countries.

Paper 7: Private Sector Involvement and Burden Sharing

Won Am Park, Hongik University

This paper will review and analyze operational guidelines of private sector involvement and the IMFs catalytic role in the debt restructuring process. The need to involve the private sector in crisis resolution has received a great deal of attention. This is partly because the public resources are not enough to prevent or resolve crises and crisis resolution strategies must use the resources carefully. Furthermore, the moral hazard on the creditors side should also be adequately addressed when a crisis rises. However, various proposals on this area are not satisfactorily proceeding because the international financial industry is very reluctant to accept those proposals. This paper will identify the obstacles that make it difficult to gain the general consensus in the international financial community and will propose how to break through it.

Paper 8: Social Policies for Poor Countries

Charles C. Soludo, University of Nigeria

This paper will evaluate the potential impacts of the proposals for a new international financial architecture on poor countries. It is important for poor countries to recognize the benefits and costs from the new international financial architecture. This paper will awaken the interests of the international financial community to legitimately pay due attention to poor countries.

PANEL DISCUSSION: NEW INTERNATIONAL FINANCIAL ARCHITECTURE AND EMERGING MARKET ECONOMIES

Every participant in this conference will exchange and present their opinions in this panel discussion. In addition, policy recommendations for emerging markets will be contemplated. The critical concern is whether existing proposals will achieve the objective of enhancing stability of international financial markets, and thus will reduce the vulnerability of emerging market economies and developing countries. In this regard, it will be expected to draw a general consensus on how to revise the G-7 led international financial architectural reform by incorporating very constructive inputs from the emerging market economies and developing countries.

<CONFERENCE PROGRAM>

THURSDAY, 9 November 2000

SESSION I: DISCUSSIONS ON NEW INTERNATIONAL FINANCIAL ARCHITECTURE

Chair: Il SaKong

9:00-9:30 a.m.	Paper 1: The International Financial Architecture: Issues and Propositions

presented by Stephany Griffith-Jones, Commonwealth Secretariat

9:30-10:30 a.m.	Commentaries:

Pakorn Vichyanond, Research Director, Thailand Development Research Institute (TDRI), Bangkok

Manuel F. Montes, Ford Foundation, New York

10:30-10:45 a.m. Coffee break

SESSION II: CAPITAL ACCOUNT LIBERALIZATION AND ITS CRITIQUE

Chair: Marie Muhammad

10:45-11:15 p.m.	Paper 2: Seeking for Appropriate Exchange Rate Regime,

presented by Yunjong Wang and Doo Yong Yang, KIEP

11:15-12:15 p.m.	Commentaries:

Ricardo Ffrench-Davis, Naciones Unidas, Santiago

Pakorn Vichyanond, Research Director, Thailand Development Research Institute (TDRI), Bangkok

12:15-2:15 p.m.	Lunch

2:15-2:45 p.m.  Paper 3: Managing Stable Capital Flows: Capital Controls and Sequencing of Capital Account liberalization

presented by Ricardo Ffrench-Davis, Naciones Unidas, Santiago

2:45-3:45 p.m.	Commentaries:

Won-Am Park, Professor, HongIk University, Seoul

Charles C. Soludo, Professor, University of Nigeria, Nsukka

3:45-4:00 p.m.	Coffee Break

4:00-4:30 p.m.	Paper 4: Regulatory Challenges: Restrictions on Highly Leveraged

Institutions,

presented by Gordon de Brouwer, Australian National University

4:30-5:30 p.m.	Commentaries:

Stephany Griffith-Jones, Deputy Director, Commonwealth Secretariat, London

Doo Yong Yang, Research Fellow, KIEP, Seoul

DINNER

6:00-8:00 p.m.	Hosted by IGE/KIEP

Keynote Speech by C. Fred Bergsten, Director of the Institute for International Economics, Washington D.C.

Friday, 10 November 2000

SESSION III: BUILDING INFRASTRUCTURE FOR NEW INTERNATIONAL FINANCIAL ARCHITECTURE

Chair: Noordin, Sopiee

9:00-9:30 a.m.	Paper 5: International Standards and Regulations

presented by Tan Khee Giap, Nanyang Technological University, Singapore

9:30-10:30 a.m.	Commentaries:

Stephany Griffith-Jones, Deputy Director, Commonwealth Secretariat, London

Yunjong Wang, Research Fellow, KIEP, Seoul

10:30-10:45 a.m.	Coffee Break

10:45-11:15 a.m.	Paper 6: Reforms on International Financial Institutions

presented by Robert A. Blecker, Professor, American University, Washington

11:15-12:15 a.m.	Commentaries:

Gordon de Brouwer, Professor, Australian National University, Canberra

Kwang-Woo Jun, President, Korea Center for International Finance, Seoul

12:15-2:00 p.m.	Lunch

Luncheon Speech by the Minister of Finance and Economy, Korea

SESSION IV: PRIVATE SECTOR INVOLVEMENT AND SOCIAL POLICIES

Chair: Ruth de Krivoy

2:00-2:30 p.m.	Paper 7: Private Sector Involvement and Burden Sharing

presented by Won Am Park, Hongik University, Seoul

2:30-3:15 a.m.	Commentaries:

Khee Gian Tan, Professor, Nanyang Technological University, Singapore

Jang-Yung Lee, Research Director, Korea Institute of Finance, Seoul

3:15-3:45 p.m	Paper 8: Social Policies for Poor Countries

presented by Charles C. Soludo, University of Nigeria

3:45-4:30 a.m.	Commentaries:

Ricardo Ffrench-Davis, Naciones Unidas, Santiago

Robert A. Blecker, Professor, American University, Washington

4:30-4:45 a.m.	Coffee Break

PANEL DISCUSSION: NEW INTERNATIONAL FINANCIAL ARCHITECTURE AND EMERGING MARKET ECONOMIES

Chair: Il SaKong

4:45-5:45 p.m.	Panel discussion

5:45-5:55 p.m.	Concluding remarks by Il SaKong