In 1990, it was possible to believe that the leadership of
the international economic system was moving away from the United States,
towards Japan and Europe. A decade later there was no question that the
United States had for good or ill maintained its position.
I believe it was mainly for the good.
In describing the development and exercise of that leadership, I will
focus on two closely related topics: the financial crises in Mexico, Asia
and Russia; and the reform of the international monetary system.
The Financial Crises
But there is an important question here: whether the U.S. (more generally,
the G-7) and the IMF continued assisting Russia for too long?
There is room to quibble about whether assistance to Russia should have
stopped three months earlier or six months earlier than it did. But the
aid effort to Russia - relying largely on IMF and other IFI funding, as
well as bilateral contributions from Germany and others - was fundamentally
successful. The main evidence for that view is there is now absolutely
no disagreement in Russia on the right economic path to take. Everything
that we in the IMF were trying to support in the way of macroeconomic stability
and the direction of structural reforms is now conventional wisdom in Russia.
No doubt the path of reform will not be smooth and there will still be
setbacks along the way, but the goal and the route are clear to Russians.
The International Financial System
Now let me turn to the U.S. role in the reform of the international
financial system. DeLong and Eichengreen describe this as a three-pronged
approach. First, increasing transparency and disclosure of information
to markets; second, strengthening the financial assistance available to
countries in trouble; and third, a greater effort to make the private sector
bear some of the costs of these crises. The last is the most difficult
of these prongs to make stick, and more work remains to be done to ensure
that private sector involvement operates effectively. But overall, this
approach to improving the international financial architecture is proving
I would add to the list the emphasis on the strengthening of financial
systems. This is a particularly important area, in which there has been
much progress - and the effort is continuing. There are also areas on the
margin where more could have been done: for instance, in requiring greater
provision of information by hedge funds.
U.S. leadership in the reform of the international financial system
often took the form of institutional innovation. Within the IMF, the U.S.
took the lead in promoting changes in our lending facilities. This included
the Systemic Transformation Facility, introduced in 1993 to help start
transition economies on the road to reform. In 1995 the Fund adopted a
policy to offer support for currency stabilization funds within stand-by
or extended arrangements, to help countries support fixed exchange rate
pegs as a way of getting out of high inflations.