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Trade and Development Report 2001

Global Trends and Prospects, Financial Architecture

image of Trade and Development Report 2001

The world economy is staring into a dangerous precipice; many see uncomfortable parallels with the period between the two world wars. Excessive financial liberalization has created a world where global private financial flows have broken free from multilateral supervision and regulation. Systemic instability and recurrent crises have followed and so far international policy makers have failed to find effective answers. This disturbing scenario provides the backdrop to the Trade and Development Report 2001. Part one of the report sets out to answer some key questions about the health of the world economy while part two takes a hard look at efforts to reform the international financial architecture.

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Towards reform of the international financial architecture: Which way forward?

The increased frequency and virulence of international currency and financial crises, involving even countries with a record of good governance and macroeconomic discipline, suggests that instability is global and systemic. Although there is room to improve national policies and institutions, that alone would not be sufficient to deal with the problem, particularly in developing countries, where the potential threat posed by inherently unstable capital flows is much greater. A strengthening of institutions and arrangements at the international level is essential if the threat of such crises is to be reduced and if they are to be better managed whenever they do occur. Yet, despite growing agreement on the global and systemic nature of financial instability, the international community has so far been unable to achieve significant progress in establishing effective global arrangements that address the main concerns of developing countries.

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