WASHINGTON, D.C.: The panics of the past two years in emerging markets have driven home many lessons about the global economy. It is now all too clear that in a world of interwoven financial markets and potentially destabilizing capital flows, there is a greater risk than ever that a crisis in one country will trigger crises elsewhere.
The international community—the IMF and its member countries, other international organizations and the private sector—is addressing this challenge by devising a set of reforms that have come to be known as the "new international financial architecture." Important progress has been made on this task, but much remains to be done.
Taken together, the reforms being undertaken are designed to create multiple lines of defense that would operate across borders and within individual countries—affecting the way that governments and the private sector operate. These reforms bring together new or strengthened standards for financial systems, markets, and businesses with a commitment to new levels of transparency. The aim is to ensure that all parties have access to accurate economic data and information about potentially market-moving developments. Included in these new global ground rules are standards for such areas as fiscal and monetary policies, accounting, corporate governance, and securities and insurance regulation.
Observance of internationally recognized standards and greater transparency, when combined with sound macroeconomic policies, should place countries on a firmer footing. By helping to make adverse economic or policy developments more apparent, greater transparency is also likely to lead to earlier incentives for governments to take corrective action.