Policy Making in an Integrated World: From Surveillance to … ?

Abstract

The adequacy of multilateral surveillance and of the institutions charged with carry­ing it out has been cast into doubt by the series of escalating crises that has punctuated the 1990s. No one questions that domestic policies have important cross-border repercussions in a world of interdependent economies. No one questions the prima facie case for surveillance to foster a consensus on the nature of those repercus­sions, to encourage countries to adjust their policies to better take cross-border spillovers into account, and to monitor governments’ compliance with the terms of their agreements. But the adequacy of existing mechanisms for discharging these functions has come under a cloud following the European currency crisis of 1992–3, the Tequila crisis of 1994–5, the Asian crisis of 1997 and the global emerging-markets crisis of 1998 and as a result of the inability of the official community to do much about either the causes or consequences of financial crises.

Prepared for the Federal Reserve Bank of Boston’s Conference on Policy Making in an Interdependent World, Cape Cod, 7–9 June 1999. This paper relies even more heavily than usual on the insights of my collaborators in various joint projects related to this topic: to the other authors of the Geneva Report on the World Economy (An Independent and Accountable IMF): Jose de Gregorio, Takatoshi Ito and Charles Wyplosz; to Morris Goldstein, David Lipton and other members of the Council on Foreign Relations Task Force on Strengthening the International Financial System; and to Fred Bergsten and others at the Institute for International Economics, which published my book, Toward a New International Financial Architecture: A Practical Post-Asia Agenda. Obviously, the opinions expressed here are not always theirs; for reasons of temperament and space, I may have put some of our conclusions in blunter and less nuanced ways than they would prefer.

I am grateful to the Federal Reserve Bank of Boston for granting me permission to reprint this article here.