Whatever Happened to the New Financial Order?
By ANTHONY SPAETH
When the roof fell in on vast parts of the world economy some two years ago, there were loud calls to raise a new one, along with stronger walls and a deeper foundation--in short, to create a new global financial architecture. There was no consensus on how to rework the system, but opinion makers everywhere agreed that the old one had to go.
Well, the old architecture is still standing. And no one's talking much these days about tinkering. The culprit: good financial news. The U.S. economy sailed through the crisis unscathed. In Asia, the region most affected, stock markets are bubbling (Mark Mobius of the Franklin Templeton Group now predicts the recent rally is the "beginning of the next great Asian bull market"), capital is coming back and economic growth rates are turning positive. "The new global financial architecture thing is totally dead," concludes Andy Xie, chief China economist for Morgan Stanley Dean Witter in Hong Kong.
Viewed another way, there's no need to repair the roof because the rain has stopped and it's more fun to go out and play--in this case, to make money. Yet the global economy is no less treacherous than before, and there is one big, scary boot waiting to drop. "If there is a crash in the U.S.," says Chalongphob Sussangkarn, president of the Thailand Development Research Institute, an economic think tank, "everyone will be affected."
In fact, a few lessons were learned from the crash of '97 and some changes made--though not at the cosmic level once envisioned. Perhaps the metaphor was wrong: instead of a global financial architecture, which suggests one vast structure, the world economy is more like a huge, barely controllable city. One of the most critical post-mortems of the crisis has been what to do about "hot money": the billions in bank loans and stock-market investments that zip around the map and then depart at the first sign of trouble. The Big Thinkers at one point talked about creating a system of international speed bumps to slow the flow. But aside from a much-debated proposal by Basel's Bank of International Settlements to raise capital requirements for banks investing in high-risk assets, few other ideas have remained on the drawing board for long. In Malaysia, the government set up capital controls to keep hot money from fleeing fast. But that's the equivalent of an individual homeowner placing a speed bump outside his house.
What's changing most is how banks operate. But, again, reforms are occurring within individual countries, not across borders. In Asia in particular central banks are now more finely attuned to regulating their banking sectors and monitoring capital inflows. Transparency, too, is improving. Thailand, where the crisis originated in July 1997, now releases macroeconomic statistics every six months. (Previously, official GDP figures were released once a year, up to 24 months after the year ended.)
The U.S. is still pushing for more dramatic progress. For example, Washington has backed a "contingent credit line" scheme, in which pre-approved emergency loans would be made available, via the International Monetary Fund, to countries with enlightened economic policies. "In creating this facility, our dream is to never have to activate it," says IMF managing director Michel Camdessus. Returning to the city metaphor: in the vast metropolis of international commerce, planning is on hold until individuals get their own houses in order.
Reported by Sally B. Donnelly/Washington, Eric Ellis/Singapore, Kim Gooi and David Liebhold/Bangkok and Isabella Ng/Hong Kong
The Asian Scorecard
The good news and bad news on the region's economies (click to open a pop-up window)
Japan
Singapore
South Korea
The Philippines
Thailand
Hong Kong
Indonesia
Malaysia
THIS WEEK'S TABLE OF CONTENTS
|
|
|