Courtesy Reuters

The Future of the International Financial Architecture

THE FUTURE OF THE INTERNATIONAL FINANCIAL ARCHITECTURE

A Council on Foreign Relations Task Force

The global financial turmoil that began in Thailand in 1997 has forced the international community to reevaluate the institutions, structures, and policies aimed at crisis prevention and resolution. In September 1998 President Clinton suggested that a distinguished private-sector group assess the need for reform of the international financial architecture. With this concern in mind, the Council on Foreign Relations sponsored the Independent Task Force on the Future of the International Financial Architecture, cochaired by Peter G. Peterson, chairman of both the Council and the Blackstone Group and secretary of commerce during the Nixon administration, and Carla A. Hills, CEO of Hills & Co. and U.S. Trade Representative during the Bush administration.

Morris Goldstein, former deputy director of research at the International Monetary Fund and now a senior fellow at the Institute for International Economics, served as project director and author of the report. Task force members are listed on page 171.

The following is an edited executive summary of the task force report. A full-length version of the report and dissents can be found on the Council on Foreign Relations Web site, at www.cfr.org.

When Thailand was forced to devalue its currency in July 1997, no one could have foreseen the turmoil that would follow. Over the succeeding two years, financial crises swept through the developing world like a hurricane. Indonesia, South Korea, Malaysia, the Philippines, Hong Kong, Russia, and Brazil were among the hardest hit, but few developing countries emerged unscathed. In the crisis countries, currencies and equity prices plummeted, economic growth turned into recession, wealth evaporated, jobs were destroyed, and poverty and school dropout rates soared. Private capital flows to emerging economies nosedived, while industrial countries saw their export markets shrink. Last fall, after Russia's debt default and devaluation and the near collapse of a large hedge fund (Long Term Capital Management, LTCM), international financial markets seized up for nearly all high-risk borrowers, including those in the

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