Stephen Fidler and Robert Chote, in Washington
The world economy "cannot live with the kinds of vast and systemic disruptions" of the last year, Mr Robert Rubin, the US Treasury Secretary, warned yesterday.
Laying the groundwork for next week's annual meetings of the International Monetary Fund and World Bank, Mr Rubin described in the most concrete terms yet US ideas for reform of the international financial system.
He likened the reforms he said were needed to those of the 1930s in the US. "We must address this challenge in the short and long term," he said in a conference speech.
Mr Rubin outlined four areas where action was needed:
increased openness in the international financial system;
strengthened national financial systems, particularly in emerging economies;
more soundly based capital flows in industrial nations and;
new ways to respond to crisis, which would include a greater role for the private sector in rescue packages.
He described proposals to ensure the private sector carried its share of the burden in responding to crisis and new mechanisms to stem financial contagion. He said the US President's working group on financial markets - an interagency group created after the 1987 stock market crash - would call for much improved insolvency and debtor-creditor codes and new clauses in bond contracts to ease debt restructuring.
He said the working group report, to be published next week, would recommend that the IMF publicise countries' adherence to international standards of transparency both on the release of financial data and in their pursuit of fiscal and monetary policy. It would also call for higher accounting and disclosure standards for private financial institutions and recommend an examination of whether institutions such as hedge funds should disclose more.
He said the industrial countries had to provide better regulation and supervision of a broad range of financial institutions and not just banks. But he warned against broad controls against capital movements, even against movements of short-term capital.
"My own view is that these very short-term speculative capital flows have played a relatively small part of what happened in the current crisis, although on an individual day in individual currencies, effects may have been significant," he said. However, further consideration was warranted to see if short-term capital movements were destabilising.
Separately, Mr James Wolfensohn, president of the World Bank, yesterday took pains to distinguish the role of his organisation in responding to the Asian crisis from that of the IMF, which has come in for fierce criticism for the impact of its economic programmes.
Mr Wolfensohn said the bank had done what it could to help finance emergency support for crisis countries, but that shareholders should not see it as "a secondlevel IMF".
Mr Wolfensohn added that the Group of Seven leading industrial countries had to realise that "the problems of the developing and transition economies are their problems too".
