International Financial Architecture (IFA) 

Introduction

Issues

Links

International Financial Architecture - Introduction

Recent financial crises in East Asia and Latin America have given rise to renewed debates on international financial stability and the functioning of financial markets. The current financial institutions at the domestic, regional and international levels are facing difficulties in dealing with modern financial markets which are characterised by a high degree of volatility. In order to achieve international financial stability there is a growing need for reform of the international financial architecture. The reforms will have considerable implications for developing countries. They are dependent on international financial markets as they are major borrowers from both private and official sources. Capital supply from international markets is important to finance economic development. Furthermore, the reforms will affect developing countries more as certain proposals for reform directly aim at the group of developing countries and transition economies.

In the current debate on improvement of the international financial architecture and the implications of developing countries Griffith-Jones and Ocampo (2002) summarise five services that the international financial architecture should provide and which are important to achieve financial stability. They are:

• Ensuring that national macro-economic policies are consistent with stability of growth at the global level, which should help to prevent crises. 
• Ensuring transparency and regulation on international financial loan and capital markets as well as regulation on domestic financial systems and cross-border capital account flows. Transparency and clear regulation will take away some sources for speculation. Therefore, it will help in the prevention of financial crises.
• Ensuring that there are sufficient official funds in international institutions which can be used when new crises arise. In such a situation the availability of official funds can perform a stabilising role.
• Enabling sovereign debt work-out arrangements at an international level. Debt work-out arrangements for countries will help to solve solvency problems of a country. This will help to limit the effects of a possible crisis, while it also secures better prospects for economic development. Speed is essential in debt restructuring schemes.
• Enabling development finance in order to address the needs of the poorest countries. The least developed countries and some middle-income countries do not have sufficient access to private flows. There is a need for capital, however, to finance their development.

These five services can be implemented at the international, regional and domestic level. The discussions are slowly leading to the implementation of reforms in the international financial architecture. On some topics progress has been made, for example with the introduction of international financial standards and codes, or the activities under the Heavily Indebted Poor Countries (HIPC) Initiative. For other issues, implementation has proceeded at a much slower pace or hardly at all, such as in the case of international work-out arrangements for sovereign debt. 

Issues

In this section you will find information on the reform of the IFA and on some of the issues which fit into the five services mentioned and which are particularly relevant to developing countries.

• General aspects regarding the reform of the International Financial Architecture (IFA)
• International financial Standards and Codes (S&Cs) which will assist in the provision of comparable information on the financial situation in different countries, thus enhancing transparency and contributing to financial stability;
• Sovereign debt work-out mechanisms which will allow insolvent countries and their creditors to restructure debts through an international arrangement.
• Principles of International Financial Institutions (IFIs) which form the background of the actions of the IFIs. Rather than discussing the functioning of IFIs in general, this issue deals with a more specific part of the discussion on IFI’s functioning, namely the underlying principles and ideologies of the IFIs.

During the EU-LDC Conference 2002 on Improving Global Governance for Development, international financial S&C, sovereign debt work-out arrangements and principles of IFIs were among the topics discussed. For the proceedings of the conference click here.

Links

World Bank section on International Financial Architecture

This section of the World Bank’s web site gives a description on the discussions on IFA. It contains links to other sites related to financial S&Cs and several other topics.

Third World Network (TWN) on Global Financial and Economic Crisis

This site contains several themes related to international financial stability with special reference to developing countries. It concludes links to contributions from researchers of the TWN and other organisations.

German Foundation for International Development (DSE): International Policy Dialogue – Financial Sector Reforms in Response to Globalisation

This site is dedicated to the outcomes of a conference which was organised by the DSE in 2001.

Jubilee Research

This NGO site provides information relevant to the reforms of the international financial architecture. Topics dealt with include the HIPC Initiative and sovereign debt work-out mechanisms.