Date: Fri, 18 Jun 1999 17:05 -0400 From: The White House <Publications-Admin at Pub.Pub.WhiteHouse.Gov> To: Public-Distribution at Pub.Pub.WhiteHouse.Gov Subject: 1999-06-18 G7 Fact Sheet on Strengthening International Financial Keywords: Business, Economy, Fact-Sheet, Fiscal-Policy, Foreign, Government,
International-Cooperation, International-Economy, Monetary-Policy,
Staff-Report, Western-Europe Document-ID: pdi://oma.eop.gov.us/1999/6/18/14.text.1 URL:
http://www.pub.whitehouse.gov/uri-res/I2R?urn:pdi://oma.eop.gov.us/1999/6/18/14 .text.1 Delivered-By-The-Graces-Of: White House Electronic Publications Precedence: Bulk
THE WHITE HOUSE
Office of the Press Secretary
(Cologne, Germany) ________________________________________________________________________ For Immediate Release June 18, 1999
FACT SHEET
Strengthening the International Financial Architecture
Last October, in the wake of severe financial crises in Asia and Russia that sent shockwaves around the world, G-7 leaders committed to work to prevent financial crises and better respond to them when they occur. Leaders have now agreed on new steps to strengthen the international financial architecture:
Stronger International Institutions and a Greater Voice for Emerging Markets
The IMF now has more powerful tools to prevent and respond to systemic
crises - large-scale, fast disbursing financing and the new line of
credit (CCL) to protect countries with sound policies from
financial contagion. These create strong incentives to implement
good policies.
Finance ministers will establish an ongoing dialogue among systemically
important countries. This dialogue will include emerging countries
to reflect the fact that tremors in their financial markets now
reverberate in major markets around the world.
Because capital flows are global but financial regulation still rests
with individual countries, we created the new Financial Stability
Forum to bring together international regulators and G-7
authorities and to anticipate steps that will be needed to tackle
new risks. We will expand membership in the Forum to include more
key financial centers.
We agree to strengthen the IMF and the World Bank
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Already, countries are asking the IMF how they should strengthen
their policies to qualify for the new CCL -- even countries that do
not face immediate danger. The incentives are working.
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Enhancing transparency
Strong comprehensive standards for disclosure by governments and
financial institutions will help reinforce market discipline.
Never before were details of IMF economic programs and policy-making
discussions available to the public. Now, much of this will be
public, along with much more data on countries.
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During the Asian crisis, investors often fled after learning that
countries had compromised their reserves through forward sales or by
lending them to domestic banks. New disclosure rules will reveal
such actions quickly, discouraging such steps in the first place.
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Stronger Regulation in Lending Countries
A stronger Basel Capital Accord to make capital charges better reflect
the real risk of lending, together with more focus on risk
management, will encourage banks to lend more prudently.
New measures -- including greater transparency and sounder practices by
lenders -- will address problems raised by hedge funds and other
highly-leveraged institutions.
Before the crisis, international banks making short-term loans to
Indonesian banks had to set aside the same amount of capital as they
did for loans to Citibank. Suggested revisions to the Basle Capital
Accord would require them to retain from two and a half times to five
times as much - discouraging risky debt accumulation.
Equipping Emerging Market Economies to deal Better with Risk
Weak financial sectors and heavy reliance by firms and governments on
short term borrowing proved a dangerous combination. Global
standards and guidelines for stronger policies and stronger
regulation -- in areas ranging from debt management to corporate
governance to insolvency regimes -- will encourage better policies.
New policies will promote more sustainable exchange rate regimes.
Capital flows offer tremendous benefits, but they also bring risks.
The new consensus on liberalizing capital flows emphasizes the
importance of strengthening financial systems and prudential
safeguards.
Removing incentives to seek short-term capital, encouraging countries
to fund themselves at longer terms, and introducing prudential
safeguards on bank borrowing will discourage the buildups of short-term
debt that proved so critical for countries like Thailand, Indonesia,
Korea, and Brazil.
Sharing Responsibility for Crisis Resolution
A new framework sets out the range of approaches the official sector
will take in facing crises - the principles that will guide
decisions and the tools that will be used. This promotes
appropriate "bailing-in" of private sector lenders and should
help prevent contagion.
New measures -- including provisions for better debt management -- will
help insulate countries from market shocks and help prevent shocks
from becoming full blown crises.
The new framework should reduce the risk that investors will lend in
the expectation that the international official community will protect
them from adverse outcomes. Investors should make better decisions if
they understand the framework for official action.