Could you describe your new approach to international financial architecture?
The new international financial architecture addresses three great issues. The first is a crisis-prevention and a crisis-resolution mechanism that is far more effective than it has been in the past. Hence the proposals for a precautionary facility that are working their way through international forums as well as national governments. Hence also our desire that we consider private-sector involvement in crisis prevention and resolution and a stronger role for the international institutions.
The second area involves a far more effective system of global financial supervision. The Financial Stability Forum brings together national and international regulators in a bid to create a system of regulation for global financial markets, not dissimilar to the system which national governments have pursued for 50 years for their national markets.
The third area is creating the transparency that is necessary through codes of conduct. I think that is the essential building block of the new international financial architecture, whereby all countries agree to pursue policies that are transparent, that are open. This will ensure that information about monetary policy is not withheld from the markets, from other governments, and the other authorities. Under this system, people can also see what is being done about fiscal policy, about corporate standards and social policy.
Do you believe a failure in the international system caused the 1997-98 crisis? That countries in Asia and Russia were not being transparent?
There were macroeconomic policy mistakes, there was a lack of supervision in the financial markets, and it is also clear that more generally there were no proper mechanisms for ensuring transparency, for crisis prevention, and no global system of financial supervision that could be effective. Yes, there were weaknesses revealed in the international system. There were also weaknesses in national policy-making revealed in individual countries. I think we can do better. Part of the discussion at G7 at Cologne this summer will be to discuss how we can arrange the international institutions to minimize both the risks of disruption, and minimize the risks of contagion if there is disruption.
The Financial Stability Forum is a standing committee that brings together the national regulators and the international regulators, so the IMF, the World Bank, the OECD, the Basle Committee are represented on it. But so too are the national regulators of individual countries, particularly the G7. By meeting together they can identify problems in the system, they can identify issues that need to be addressed. It may sound strange but this has not been a feature of the international financial system before.
Has the IMF embraced this?
The proposals we are making will allow the IMF to be more effective in the future. The IMF depends on the support it is given by individual governments. The IMF's proposals for fiscal and monetary codes of conduct are excellent. They have moved things forward over the last few months. I want to give the IMF and Michel Camdessus the support that they deserve. The IMF has a role in national surveillance that over time will be more effective.
How important is private-sector participation in this system?
Discussions have taken place as to how the private sector can play a more critical role in crisis prevention and crisis resolution. The private sector has rights and responsibilities, and we have got a duty to publish more information, to be more transparent, to give the markets the information they need, and therefore have educated markets. At the same time, we believe we can devise a system where the private sector has a stronger long-term role to play in crisis prevention and resolution.
The markets will punish countries that pursue policies that lead to instability. As far as yellow cards are concerned, one of the roles the IMF and international institutions can play is to tell the markets which countries have subscribed to a particular form of action, and to report on individual countries which have failed to achieve certain goals.
In that way can crisis be anticipated and prevented?
It is quite clear that if we had more information earlier on about policies pursued by some countries in Asia we could have avoided the depth reached in some of these crises. Had we had more transparent systems of reporting, we would have anticipated events and taken action earlier.
Are you providing a European alternative to Bretton Woods?
It is not a European alternative. It is building on Bretton Woods. Bretton Woods was built on the great and worthy objectives of long-term and high and stable levels of growth and employment. The world has changed in the last 30 years, and it is hardly surprising that the institutions must change as well. Nobody is proposing new institutions, they are proposing a reform of existing ones and more important than that, new rules of the game. These rules will require countries to make their policies more transparent and more susceptible to surveillance.
What is the private sector's role?
We are talking about a better relationship between public and private sectors in the future. Countries that borrow heavily on the international financial markets will, in return for providing regular information to the financial markets and a degree of transparency that in some cases has not been seen in the past, find that the private sector is prepared to accept its responsibilities. This will mean the private sector will stay with the countries concerned and not run away at the first hint of trouble. The mechanism for this dialogue between borrower countries and the private sector will be an investor network - some call them country clubs - which will share information regularly, on a month-by-month basis, to guarantee that both sides know exactly what is happening. The regularity of the contact, the willingness to share information, the openness of the process, the surveillance done by the IMF, all these will make the world a more stable environment.
How do you assess the performance of the euro?
If six months ago, or a year or two ago, people had described how the euro zone might look three months after the birth of the new currency, they could not have predicted a more positive environment, with low inflation and fiscally responsible economic management. So no-one should underestimate the achievement of the 11 countries that have joined the euro, in creating both low inflation and stable public finances. Inflation in Europe over the 1990s has reduced from 6% to 2%, it is now even less than 1% on one measure. It is also true that public finances that were in deficit by 6% are now under 3%. So the euro has developed in a stable environment.