Reform of international financial safety nets a must

The system of international financial safety nets needs to be reorganised to ensure sufficient liquidity to combat systemic crises, an Asian Development Bank (ADB) seminar heard today.
The seminar, Reforming International Financial Safety Nets, took place at ADB’s 45th Annual Meeting of the Board of Governors. “International and regional financial safety nets have become much more important in an era of globalised financial markets and volatile capital flows,” said ADB chief economist Changyong Rhee. “To enable developing Asia to ride out financial storms, what is needed is a new, flexible system that is truly international and adequately financed.”
Speakers at the seminar, co-sponsored by the International Monetary Fund (IMF) and Philippines Central Bank, emphasised that reform of the international financial system had become more pressing since the 1997–98 Asian financial crisis to prevent localised crises from spreading to the global economy. The crisis prompted ASEAN+3 countries to launch the Chiang Mai Initiative (CMI) in 2000 to provide emergency liquidity. The initiative began as a bilateral currency swap facility, but after the 2008-09 global economic crisis it grew into a multilateral facility, the Chiang Mai Initiative Multilateralisation (CMIM).
On May 3, ASEAN+3 announced a doubling of the CMIM to $240 billion and an increase in the amount countries can access without IMF conditionalities. The network of financing arrangements, however, remains a work in progress, as seen by the numerous reforms since the 2008-09 crisis, the audience heard. The challenge is to find a solution that provides the needed support to countries without giving rise to undue risk, such as the IMF lending facilities targeted to
countries with a track record of sound policies.
Panelists discussed how the current system could be reformed and what role existing and new regional financing mechanisms would play. Other issues touched upon included how reforming international financial safety nets could lead to progress on important global macroeconomic issues and how reform would affect exchange rate policy and international capital flows.