AFR DATE: Monday, February 22, 1999

Time for action on crisis economies

The Group of Seven nations, moving to identify and deal with global financial crises sooner, has endorsed a plan that will bring together the world's top financial market regulators twice a year to swap information.

The panel, recommended by Bundesbank President Mr Hans Tietmeyer, will be chaired by Bank for International Settlements general manager Mr Andrew Crockett, and include representatives from the International Monetary Fund, the World Bank, the BIS and national government and central bank officials, as well as insurance and banking regulators.

In endorsing the proposal, the G-7 overcame scepticism among some members that the advisory panel would become just another ineffective, albeit high-profile debating forum that could deliver few concrete solutions to the world's economic problems.

"Ultimately, the process of strengthening co-operation should make a significant contribution to a better functioning of the financial markets," Mr Tietmeyer said in his report.

The panel brings together influential regulators, who are expected to build consensus for a set of international market standards that would lead to better transparency for investors and provide more security for corporate shareholders around the world.

The regulation and monitoring of international hedge funds is also on their agenda.

"Recent events have illustrated the potential risks to the world economy arising from financial market problems and the threat of chain reactions in the financial sector," Mr Tietmeyer said.

The report calls for a "financial stability forum" to "meet regularly to assess issues and vulnerabilities affecting the global financial system and to identify and oversee the actions needed to address them."

The forum will report to the G-7 ministers and central governors, and could hold its first meeting in "spring 1999", Mr Tietmeyer said.

Initially, deputy finance ministers and deputy central bankers from the G-7 should take part in the twice-yearly meetings, he suggested. National authorities from non-G-7 countries could join the forum at a later stage.

The G-7 agreed to the panel as pressure mounts around the world for solutions to isolated global crises, such as currency devaluations in East Asia, Russia and Brazil, which threaten established economies in the rest of the world.

Creation of the panel also comes amid mounting criticism of the existing international monitors, such as the IMF and World Bank.

Mr Tietmeyer's proposed forum "means the financial markets know how highly indebted certain countries are, how much in debt the big countries are, how committed the banks are," he said in an interview with German radio station NDR4 radio.

The panel will push for more widespread use of international accounting standards and will exchange information regularly on the financial health of globally active banks, insurance companies, hedge funds and other financial market institutions that are so large that their dealings, or sudden collapse, can affect the health of economies.

"The problem is that it's impossible for any group like this to set limits or get anything done," Mr Lothar Hessler, an economist at HSBC Trinkaus Research in Dusseldorf, said before the meeting.

"Certainly, there's a need for more cooperation among G-7 nations, but I'm sceptical about this solution."

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