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Reforming the Global Financial Architecture

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A report prepared for the 1999 Commonwealth Finance Ministers Meeting, discussing the reform of international financial architecture. It argues that contemporary crises are very different from traditional balance of payments problems, and that developing countries are especially vulnerable. Six areas of discussion have been identified, some well known, others involving new initiatives. The report also identifies issues in the area of crisis resolution. It looks at the role of the Fund; incentives for the private sector; measures to deal with imprudent creditors and the design of adjustment programmes. It concludes by proposing a new governance structure.

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Crisis Resolution in the New Architecture

Since crises will occur periodically despite the best efforts at crisis prevention, the new architecture must provide suitable mechanisms for crisis resolution to deal with these occurrences. There is much less agreement in this area than in the area of crisis prevention because of differences on certain critical issues, especially the role of public international resources in managing crises, and the issue of moral hazard. Much depends on the extent to which the crisis is perceived to be caused by conscious pursuit of wrong policies or by pure contagion and also the extent to which it is likely to have systemic effects.

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