Conclusion

Are we left with the disturbing conclusion, after surveying the political obstacles evident on the horizon, that reforming the international financial architecture is an impossible prospect? My answer is no, although reform clearly involves building a consensus around the problem at the heart of the present system, fusing a number of divergent institutions in order to address this problem, and mobilizing the political resolve to achieve it. None of these steps is easy, but just as John Maynard Keynes demanded in his memorable 1945 cable, we must remove the fig leaves if we are to ascertain the road ahead. Stripped of its fig leaves, then, how does the new Financial Stability Forum (FSF) appear in the cold light of a harsh climate? Three observations should be noted.

First, the FSF clearly develops out of a consensus regarding the genesis of financial crisis, and especially out of the recent experience of Asia. Of particular importance is the need for governments to monitor more closely the short term borrowing activities of their corporate sector, and to use a wider array of financial instruments to manage their own debt. It also appears that the advice in favour of fixed exchange rates is now coming under increasing scrutiny. Additionally, there are heightened concerns to stage financial liberalization more effectively, and to pay more attention to capital account liberalization. Overall, the consensus upon which reform is based, despite a few objections, remains focused upon what governments of crisis-prone countries must do to better manage liberalization and integration into the global financial system.

The formation of the FSF is meant to assist these crisis-prone countries in their endeavours. The degree to which the FSF realizes institutional melding, however, remains an open question. The IMF and BIS have never worked together so closely before, much less with the addition of quite so many other national and international authorities. On the plus side these people are all known to each other by virtue of their functional capacities. However, set against that positive externality is the lack of centralized decision-making within the FSF. It is primarily a talking shop at the moment, designed to establish and disseminate best practice in an informative and timely manner. It therefore remains to be seen whether it is more effective than past attempts.

But the most significant black spot working against the FSF is the absence of a sustained political resolve to address the problem of financial crisis among the G-7 nations collectively. From the outside at least, the FSF seems bereft of political leadership; it appears to be a least common denominator approach to fixing a potentially lethal problem, one whose diagnosis hinges on curtailing the ability of some to move capital and financial assets around the globe with as little resistance as possible. It appears therefore that the long road to reform still stretches ahead of us. Quoted in Richard N. Gardner, Sterling-Dollar Diplomacy, 2nd ed. (New York: McGraw-Hill, 1969), 205. Ethan Kapstein, 'Shock Proof', Foreign Affairs, Vol. 75, no.1 (1996): 1-8?. It should be noted that Kapstein's analysis was based on his previous work. See especially Ethan Kapstein, Governing the Global Economy (Cambridge, MA: Harvard University Press, 1994).

Note usual suspects: Ohmae, O'Brien etc..; other critical ripostes?? Michael Bordo and Barry Eichengreen, eds., A Retrospective on the Bretton Woods System. (Chicago: University of Chicago Press, 1993); Peter B. Kenen, ed., Managing the World Economy Fifty Years after Bretton Woods. (Washington: Institute for International Economics, 1994). Morris Goldstein, The Asian Crisis. (Washington: Institute of International Economics, 1998). Susan Strange, Mad Money (Manchester: Manchester University Press, 1998).

For the purposes of this essay, the possibility of designing a completely new international financial institution, along the lines for example of a 'world financial authority' proposed by Tony Blair, is considered to be too remote to warrant further consideration. Indeed, one indication that this particular barrier should not be considered too high is the fact that the present General-Manager of the BIS, Andrew Crockett, spent several years seconded to the IMF while he was at the Bank of England.

For a fuller discussion of the surveillance role of the IMF, see Louis W. Pauly, Who Elected the Bankers? Surveillance and Control in the World Economy. (Ithaca: Cornell University Press, 1997).

Example?? This is not the case with its research, it should be stressed, which often contextualizes financial crises in its accounts of them. See for example.... The best example of such action is the 1988 Capital Adequacy Accord which established permissible levels of paid-up capital that internationally-active banks had to set aside against risks of varying categories. See Ethan Kapstein and Tony Porter. Indeed, this has been one of the fundamental criticisms of the capital adequacy accord from its inception. Kapstein... Pauly, Review of International Political Economy, forthcoming. Richard Higgott, “The Asian Economic Crisis: a study in the politics of resentment”, New Political Economy, Vol. 3 (1998), pp. ?? It could perhaps be argued that the Savings and Loan fiasco in the US, the abortive autumn 1998 stock market correction, and the ongoing Japanese banking difficulties might qualify as crises, except that none of these have placed governments or economies at risk of collapse.