1999-06-18 G7 Fact Sheet on Strengthening International Financial

[Robert Weissman <rob@essential.org>]

                            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.              
                                                                      
          _________________________________________________    



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.    
                                                                      
          _________________________________________________    



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.