What Progress on International Financial Reform? Why so Limited? and: Counter-Cyclical Prudential & Captial Account Regulations in Developing Countries (Expert Group on Development Issues, 2003, 1)

The study What Progress on International Financial Reform? Why so Limited?, by Stephany Griffith-Jones and Jose Antonio Ocampo, gives an overview of the emerging international financial architecture. The goals of a new international financial architecture should, according to the authors, be to prevent currency and banking crises and better manage them when they occur, and to support the adequate provision of net private and public flows to developing countries. Progress towards these goals has so far been uneven and suffered serious problems. There has been no agreed international reform agenda. Some advances in the international financial architecture run the risk of reversal. The study also discusses what can be done to overcome the insufficient representation of developing countries in key financial institutions and organisations. A fund or resource centre could be created that would provide independent support to representatives of developing countries in the boards and fora where the international financial reform agenda is being discussed.
The study Counter-Cyclical Prudential and Capital Account Regulations in Developing Countries, by Jose Antonio Ocampo and Maria Luisa Chiappe, explores the role of two complementary policy instruments for managing the effects of boom-bust cycles in developing countries : counter-cyclical prudential regulations on domestic financial intermediation, and capital account regulations. The study argues that prudential regulation and supervision should take into account not only microeconomic, but also the macroeconomic risks associated with boom-bust cycles. In particular, instruments need to be designed that will introduce a counter-cyclical element into prudential regulation and supervision. To guarantee this, banks' provisions for loan losses should be more forward-looking. As the major source of boom-bust cycles in developing countries is capital account volatility, the authors find that a mix between the prudential banking approach and direct capital account regulations is advisable. The paper also highlights experiences with capital account regulations in the 1990s in Chile, Colombia and Malaysia.