Camdessus calls for a new financial architecture

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Former IMF managing director Michel Camdessus is calling for a new financial architecture to regulate all financial activities worldwide.
“No activity should be left uncontrolled or unregulated,” Camdessus said, adding that the current financial crisis was “the price for negligence.”
“At least let us know who would be responsible for the crisis. At this moment nobody feels responsible because no one was in charge,” he added. The new global, financial architecture should include all countries in the world, particularly the poorest countries.
“(It is) fundamental to make sure no country be out of place where their destinies are being affected,” he said.
Here are my notes on his speech at the ADB and the press conference that followed. I didn’t get it all, though, and there might be mistakes.

presscon:

Repeating since 11 years bec in the aftermath of…during asian crisis these kinds of reforms…particularly to broaden the manate of imf..establishing discipline in monetary era…disoder…in growing financial scheme…in such a way…disruption(?) should be prevented. Made evident at end of Mexican crisis in 1995…crystal clear at time of asian crisis…disorder there created crisis, though had to be addressed by giving…mandate(?) to imf…big deliberation…as soon as crisis over, you forget…in same way, idea of giving more political clout to imf by creation of council…something already there in text since 30 years…not least importantly, providing strong…institution with stronger legitimacy by recognizing changes in world, growing importance of emerging countries and poor countries…requiring change in distribution of…already obvious at that time. Now paying price for negligence, we must adopt these changes if anything for avoiding recurrence of formidable crisis. …we must avoid…at least these reforms…which will not prevent all kinds of crisis but avoid recurrence of these kinds of events. At least let us know who would be responsible for crisis. At this moment nobody feels responsible because no one was in charge…

(what would imf be able to which not able right now) imf in charge of monetary issues…suggest imf to have…also…in capital accounts. Financial issues…cannot do that alone. This is what I was so emphatic in talking about needed distribution of responsibilities with forum for financial responsibilities…in 90s…has something the imf has which is global responsibility written in articles of agreement. By working with imf forum able to broaden this scope and get proper leverage for having suggestion for changing regulation…in universal domain…in passing it would be important to broaden forum to all the key financial sectors of the world and particularly to many asian countries…

for kuroda: dev’t of china. China’s role in recovery of region from crisis?
already china is second largest econ in the region next to japan. First and most important contribution china can make to global econ recovery is to sustain high growth in china…and already the govt has announced huge fiscal stimulus package…would help econ sustain relatively high growth… econ may not be able to keep double digit growth…and perform in last ten years but 7-8% growth would be quite high…relatively high growth sustained in china would help regional econ, global econ to recover sooner rather than later. Second contribution china can make…as camdessus emphasized…could contribute to designing of new global financial architecture, functioning of new global financial architecture…and certainly china can contribute to smooth functioning of financial system, architecture…china as emerging donor could continue and enhance its assistance to developing countries particularly the poorest countries in the region and also the world. In many ways china can and I think making effort at contributing to…

how viable…sounds like some global govt think developed countries would be wiling to adopt, new layer of diplomacy, infringe on political powers… many already resent imf dictation?
camdessus: each time you propose to create something you must be prepared for some objections. But in this case, I wouldn’t believe that the objections would come from developing countries bec very purpose of creation to make sure developing countries would have their say at the top level…even in the g20…poorest countries in world are not represented. What I am proposing is system in which all countries in proportion of importance would have voice…system can be refined…complicated to establish…create constituency…make sure all countries sit at table. Fundamental to make sure no country be out of place where their destinies are being affected. This is what is behind that, no more. I know that it imply…for you to have less representation there…in this new system…for the world to work in harmonious way better to have that. Urge my fellow to accept this sacrifice to have a better world working system.

how much capital increase adb wants, what portion of supplementary funding for devt sectors such as infra, health?
Kuroda: asking shareholders to increase adb capital by as much as possible in a very difficult time. Currently shareholds are discussing among themselves how increase provided to adb. Hope before our annual meeting in may shareholders would agree to large substantial capital increase for adb. If we are secure with the substantial capital increase we can…address current crisis, provide amount of financial assistance to affected developing countries in asia, second, we can continue providing financial as well as technical assistance to developing countries to reduce, promote econ devt. You mentioned infra educ health care I think our focus will continue to be infra envt educ and so on so forth. I can assure you adb would continue to provide necessary assistance to developing countries in asia in area of..infra, envt, educ, health care.
Camdessus: witnessing what adb is doing in this part of the world, I can say that the numbers which are mentioned by mr kuroda are very reasonable indeed. If I ask.i have been invited several years ago to advise…un…on problems on water in world. They have two mdts for water in world, reduce people with no access to water and no access to sanitation…means of achieving millennium development goal for water. Adb one of those who took call seriously…how to go to nitty gritty of issues and provide exemplary contribution…we are talking about life and dignity for millions of people…

Global financial structure…?
Camdessus: the three levers of this architecture. The top, new global governance group with legitimacy this time as it will be rooted in bretton woods architecture and no longer self appointed group as g8 or g20 was…political level…where strategy defined, powerful global people, instead of interim committee or imf c, you have council. Instead of consultative group, will have political responsibility…at this moment decision power with executive board, consultative role with political people. Decision making body will be council.
We have architecture but we need people there. Taking advantage of power to change the world, regulate…financing…goes more fairly to those who are in need. Better and more accurate ways for needs of community. Here the big change we are promoting is now asia must be in driving seat. At least to share the driving seat with other financing centers of world. You need most important partners there…

Speaking as citizen in the street…hoping somebody will hear…the response…you will see in the next july when g8 summit will propse things and nex September or oct full set…I hope that these circumstances will make our leaders decide now what their predecessors should have decided in 1998. Hope now we will have positive response. What I hear is that yes they see that these kind of ideas must be considered very seriously. What should all of that produce? Regulations where you have unregulated activities. And here I am very satisfied when I see agenda for action established by g20 in nov15…no activity should be left uncontrolled or unregulated including offshore centers, rating agencies, hedge funds, all these sectors which were in twilight of regulation should now fall under international relation…not heavy but at least clear and transparent framework from all these activities. When all of that will come into being, normally should take time and we wil have very tough nego particularly on issues of distribution of power, chairs, shrinking bodies, all extremely difficult as extremely diffuclt to agree on financing..but believe all of that will finally be adopted. What will be impact? Financing and particularly capital increases in right places, for my friends in asia, concern about seeing big effort and push for infra, can trust adb for doing that as they can trust…but one thing which is very important by establishing this archi not only establish more fair system to rule the world you reestablish confidence. One problems today with this lack of confidnce in system is fact that institutions in charge are no more trusted for being abl to cope with sheer dimensions of crisis. We are proposing system which should be commensurate with problems and ready to prepare for better future. Contribute to recovery by creating that.

q&a after the speech:

(how process unfolding towards new global architecture)…we are now under very different circumstances. I refer to this silver lining which is sheer obligation to leaders of world to produce something…no kind of regulation whatsoever…regulation establishing a new architecture…reestablish confidence in financial sector…suspect that the more they advance, more discover…let’s joint forces inasmuch as all of you people highest possible influence…

(wondering if all these activity focused on developing new financial architecture, in that discussion how much attention given to how address immediate crisis, arresting decline, how much time to prepare not to happen again?) our leaders must look at the long term perspective…but while having attention focused on what immediately should be made for having confidence in banking sector established.implies financing spent..on all possible kind of intervention including…nationalization…all of that…simultaneously..without forgetting we must also take care of these countries which have no responsibility at all in crisis but which being poorest would be most seriously affected by crisis. We have multifaceted agenda, resources are scarce…to launch activity in major countries, create phenomenon in international market poorest could suffer from…significantly reinforce the financing of institutions such as adb, imf…we know poor resources limited…precisely there to respond to squeeze of liquidity in system…

speech:

Camdessus: the most severe of my lifetime…I can’t see whatever reason for excluding japan from asia…truly universal in history of humanity. Not yet bottomed out…recovery..for many commentators recovery is remote…I think it could be better for us to ask ourselves, how can we contribute to make recovery earlier than expected? Yes there is nothing premature in talking about recovery or at least the conditions which could facilitate. One, is not to expect the recovery to come from other places. But to mobilize with no delay all available resources…activity and growth. Second, not only to react quickly but to do it in regionally coordinating way recognizing that on one hand, once recovery there those quickest to anticipate will benefit most. Coordination…positive efforts of whatever stimulus initiative. Third, to intensify our work in designing…new global…and local instruments which could contribute to make recovery lasting one and avoid recurrence of present catastrophe. ..let me use liberty I enjoyed by speaking on my personal capacity to start with two unconventional. This is the crisis which should have never happened. Would never happened if what appears as the key lesson of last asian crisis, immediately drawn by adopting and vigorously implementing set of reforms of international architecture which appeared necessary at the end of 1997. At that time…became a fashionable thing…comprehensive proposals made for reforms but action was piecemeal at best. And of course human history repeated itself. You need crisis for reforms, during time of crisis reform somewhat but as soon as crisis is over, you forget about reforms. And here we are. The second thinking is a little bit less pessimistic. If there is a silver lining in the present situation, it is that the sheer severity of this crisis, $50T a significant property in asia…has been lost…all that, not to mention related human sufferings, should open eyes of all leaders of world of need to establish right away a new reliable architecture. Never chances of building a brand new architecture gathered such a way…ever such a program has been established…so the question now is what should be the key building blocks for that architecture? Natural for friends in emerging market forum…and my friends…to put our heads together to try to identify the basic building blocks. We ended up with a very single…we need basically two things: a brand new imf. A new global governance group, to be…to all key gs, particularly g8. Very simple scheme indeed. Simplicity does not mean immunity from skepticism…one, a brand new imf. Three basic reforms are needed for that: new mandate, high council entrusted with political responsibility…re establishment of unquestionable legitimacy. New mandate. This mandate is indispensable and because an amendment of articles of agreement for imf…full surveillance of financial developments…(big skip here) and accountability…changing articles essential for radical, credible reform. Also recognize that magnitude of responsibilities entrusted to imf justify that…more participatory direction and ensuring political accountability. The most…way to achieve objective…putting in place high decision making body…composition of highest political level…could confer strongest possibility authority to decisions adopted…reform provide action of imf with high political ground provided ministers and governors provided obligation to involve themselves…inauguration…but here comes a first objection. Aren’t you reducing somewhat the role and prestige…nothing could be more contrary to my intentions. The objective is two fold: sincerity. To reflect better in the institutional setting the reality…immensely in hands of highest..authority…the basic objective is to make sure that the central body of imf, could concentrate on the very systemic issues. To ensure new org enjoys immediately the credibility and legitimacy needed…improve voice and representation of fast growing emerging countries. Should take place as soon as possible. Credibility of fund depends on realigning power within institution with realities of global economy…times have changed, we have entered into new geologic era. No more afford to delay until 2013…an optimal composition of exec board…difficult and time consuming…every effort should be deployed to adopt…right away and no later than 2010. ..without changing mandate of other institutions…with these 3 basic reforms, we will have a brand new imf in place. But we would need more: a new global governance group. We must ensure that all the countries and I underline all the countries, are represented in all the levels of governance of the system including at the highest level. This means that the g8 should be prepared to relinquish its presently…to a new body I would call the global financial and monetary governance board. A place where countries sitting in exec board and council should be sitting also together with sec gen of un, wto, ilo…these would be an effective way to put in place a global group allowing for greater sharing of responsibility, enjoying credibility, influence, to adopt strategies…why not utilize g8 or g20? Useful as it may be, it only represents 20 countries. ..with no country having privilege to appoint its own exec dir. At the global highest level…global governance group and no more g8, starting with 24-25 members…this is at highest level. Below this global governance group, for monetary and financial issues, council with executive powers instead of present imf…below council, responsibilities for ordinary business of fund and oversight…as you have observed, not commented on all changes both in governance and operations which would be needed at world bank and regional devt bank. While admirer of many achievement, no personal experience…from their part, continuation and if needed the intensification of permanent effort of streamlining…to present need of members…significant effort to increase capital and..financing…no better investment could be made..couldn’t see better use of scarce financing resources than to provide adb..with capital increase…multilateral financial institutions like adb can play counter cyclical role to mitigate impact of crisis collectively institutions already making unprecedented efforts…g20 leaders have pledged…to continue playing role in overcoming crisis. Adb made tremendous contribution to devt of asia and pacific region and full support of counterparts in request for…capital base…available as early as possible and if possible before. ..role of uncomplacent surveillance, excellence in conduct of national policies and regional cooperation. Role of active contribution to the global coordination and a role of generous solidarity. A demanding agenda but justified by what the asian econs have become, by the proper asian needs, present requirements of anomalous devt by world econs…active and forceful use of greater asian vote and power…through full use of constituency system…each country in position to be heard at the top. Also of chiang mai agreement and all other instruments of cooperation…this is no way reduces the need for greater coordination with imf…bigger representation also is needed in…forum for financial stability…continued…should be accomplished in improving national…second, banking system…contributing generously to trade balance in financing of global system…utilizing part of reserve for temporary financing of new imf as japan inteads to new, or supporting idea…nothing of that…asia has all needed reasons and experience to be ready for that. Which at this dev’t cannot afford….this is truly the hour of asia.

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