13. The IMF and the new international ﬁnancial architecture Elaine Hutson and Colm Kearney INTRODUCTION The world ﬁnancial system seems to be exhibiting an increasing degree of fragility. At the national level, more than a dozen countries have, during the last decade or so, experienced systemic ﬁnancial shocks that cost more than 10 per cent of GDP to ﬁx. Even amongst the developed OECD economies, which have well-developed ﬁnancial and regulatory systems, France, Finland, Japan, Norway, Spain, Sweden and the United States experienced major ﬁnancial problems. At the international level, the world has witnessed four ﬁnancial crises of varying degrees of seriousness in the last two decades: the Latin American ‘Southern Cone’ crisis of 1981–2, the European Exchange Rate Mechanism (ERM) crisis of 1992, the Mexican tequila crisis of 1994 and the Asian crisis of 1997–8. The Asian crisis has been the most serious, having not only catastrophic eﬀects on the countries directly involved, but also threatening the systemic stability of the global ﬁnancial system. The scale of the Asian crisis – amounting to a capital outﬂow equivalent to 11 per cent of the aﬀected countries’ combined GDP – makes it the worst crisis since the Southern Cone crisis in Latin America, where there was a net private capital outﬂow of 8 per cent of the combined GDP of Argentina, Brazil and Mexico. It is crucial that we develop an understanding of the causes of these crises, how their occurrence can be minimized, and how they...
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