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Regional Financial Cooperation

Regional Financial Cooperation

Copyright Date: 2006
Pages: 375
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  • Book Info
    Regional Financial Cooperation
    Book Description:

    Using the experience of postwar Western Europe as a benchmark, José Antonio Ocampo and his colleagues assess how regional financial institutions can help developing countries -often at a disadvantage within the global financial framework - finance their investment needs, counteract the volatility of private capital flows, and make their voices heard. The 1997 Asian financial crisis generated extensive debate on the international financial architecture. Through this discussion, it became clear that services by financial institutions - including adequate mechanisms for preventing and managing financial crises, and instruments for safeguarding global macroeconomic and financial stability -are undersupplied. Furthermore, private international capital markets provide finance to developing countries in a way that effectively reduces the ability of those nations to undertake countercyclical macroeconomic policies. International capital markets ration out many developing countries, particularly the poorest, from private global capital markets. While these deficiencies in the financial architecture are clear, the post-1997 debate has done little to evaluate the role that regional institutions could play in improving global financial arrangements. Regional Financial Cooperation aims to fill that important gap. Contributors include Ernest Aryeetey (Institute of Statistical, Social and Economic Research, University of Ghana), Georges Corm (Saint Joseph University, Beirut), Roy Culpeper (North-South Institute, Ottawa), Ana Teresa Fuzzo de Lima (Institute of Development Studies, University of Sussex), Stephany Griffith-Jones (Institute of Development Studies, University of Sussex), Julia Leung (Hong Kong Monetary Authority), José Luis Machinea (ECLAC), Jae Ha Park (Korean Institute of Finance),Yung Chul Park (Korea University), Fernando Prada (FORO Nactional/International, Lima), Guillermo Rozenwurcel (School of Politics and Government, University of San Martin, Argentina), Francisco Sagasti (FORO Nacional/Internacional, Programa Agenda: Peru), Kanit Sangsubhan (Fiscal Policy Research Institute of Thailand), Alfred Steinherr (European Investment Bank, Luxembourg and University of Bozen-Bolzano), Daniel Titelman (ECLAC), and Charles Wyplosz (Graduate Institute of International Studies, Geneva, and Center for Economic Policy Research).

    eISBN: 978-0-8157-6418-2
    Subjects: Business, Sociology

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Foreword
    (pp. vii-viii)
    José Luis Machinea and José Antonio Ocampo

    The Monterrey Consensus, adopted by the 2002 International Conference on Financing for Development, highlighted in its paragraph 45 “the vital role that multilateral and regional development banks continue to play in serving the development needs of developing countries and countries with economies in transition.” It went on to note, “They should contribute to providing an adequate supply of finance to countries that are challenged by poverty, follow sound economic policies and may lack adequate access to capital markets. They should also mitigate the impact of excessive volatility of financial markets. Strengthened regional development banks and subregional financial institutions add flexible...

  4. 1 Regional Financial Cooperation: Experiences and Challenges
    (pp. 1-39)

    The period following the 1997 Asian crisis generated an extensive discussion on the international financial architecture. The debate made clear that there is an undersupply of services by international financial institutions that has become more glaring as a result of the growing economic linkages created by the current globalization process. The associated “global public goods” that are being undersupplied include adequate mechanisms for preventing and managing financial crises, as well as for guaranteeing global macroeconomic and financial stability. The debate also underscored the fact that private international capital markets provide finance to developing countries in a highly procyclical way, effectively...

  5. 2 Reforming the Global Financial Architecture: The Potential of Regional Institutions
    (pp. 40-67)

    The international financial crises of the 1990s and early years of the twenty-first century initiated the beginnings of reform to the global financial system. These focused principally on remedying the financial fragility of emerging market economies, the principal victims of financial instability. In contrast, there have been no real reforms aimed at preventing or constraining financial instability at its core, for example by fundamentally restructuring the Bretton Woods institutions, or by rewriting the rules of the game for global financial markets. In the meantime, the urge to reform has lost political impetus among the G-7, the key players on the...

  6. 3 Regional Development Banks: A Comparative Perspective
    (pp. 68-106)

    This chapter compares the roles played by regional and subregional multilateral development banks (MDBs) in development financing and attempts to integrate fragmented data and information from a variety of sources.

    Development financing institutions are situated at the intersection of the international development system and the international financial system. While there are several entities that straddle both systems, the MDBs occupy a unique place because of their specific characteristics and because they interact with most of the actors in both systems. Multilateral development banks are international financial intermediaries whose shareholders include both developing countries that borrow from them and developed countries...

  7. 4 Regional Exchange Rate Arrangements: The European Experience
    (pp. 107-135)

    Regional arrangements generally remain controversial. They are sometimes seen as a threat to multilateralism, and multilateralism is, in principle, first best. The argument for multilateralism and against regionalism is best developed for trade arrangements: regional agreements have a trade-creating effect within the region but also a trade-diverting effect in the rest of the world, and for that reason could quite possibly reduce overall welfare. Yet the threat is not substantiated by historical developments over the past decades. Baldwin develops a convincing domino theory according to which regional trade arrangements prompt multilateral arrangements as those left out face additional incentives to...

  8. 5 European Financial Institutions: A Useful Inspiration for Developing Countries?
    (pp. 136-163)

    Since its beginning, European integration has been accompanied by the creation of major financial mechanisms. Such mechanisms and the resulting financial transfers have been seen as both an economic and a political condition for making economic integration effective and equitable. These mechanisms have included grants (through the Structural Funds), loans (mainly through the European Investment Bank), and most recently, guarantees (European Investment Fund).

    These financial mechanisms have had two major aims: (1) reducing income differentials between countries and regions within the European Community (and later the European Union), particularly those resulting from trade liberalization, and (2) allocating major financial resources...

  9. 6 Macroeconomic Coordination in Latin America: Does It Have a Future?
    (pp. 164-199)

    For most developing countries, open regionalism has emerged as a sensible response to the ongoing turbulent and asymmetric process of economic globalization: it avoids the huge costs associated with both isolationism and outright liberalization. Moreover, the successful experience of the countries that now form the European Union has made regional integration an increasingly attractive option for the developing world.

    Whenever regional integration is intended to go beyond just a free-trade agreement, macroeconomic coordination becomes a key issue. From a theoretical standpoint, the underlying idea is simple: when economies are interdependent, the events that take place and the policies implemented in...

  10. 7 Subregional Financial Cooperation: The Experiences of Latin America and the Caribbean
    (pp. 200-226)

    The countries of Latin America and the Caribbean have made significant progress in building a system of institutions for financial cooperation and integration. In addition to promoting productive and social investment financing via development banks, another aim of financial integration has been to facilitate intraregional trade and help finance the countries’ short-term liquidity needs.

    The foreign debt crisis of the 1980s undermined regional financial cooperation and integration, except among the institutions covering the countries of the Andean Community, which were more dynamic during the 1980s crisis. Starting in the 1990s, there was a revival in financial integration schemes. Indeed, in...

  11. 8 Regional Financial Integration in East Asia: Challenges and Prospects
    (pp. 227-263)

    The large currency crises of the past decade have been regional in nature.¹ This feature of financial crises suggests that neighboring countries have a strong incentive to engage in mutual surveillance and to extend financial assistance to one another in the face of potentially contagious threats to stability. Regardless of whether the sudden shifts in market expectations and confidence were the primary source of the Asian financial crisis, foreign lenders were so alarmed by the Thai crisis that they abruptly pulled their investments out of the other countries in the region, making the crisis contagious. The geographic proximity and economic...

  12. 9 Asian Bond Market Development: Rationale and Strategies
    (pp. 264-290)

    Of all the structural weaknesses that might have caused the 1997–98 East Asian financial crisis, the absence of vibrant bond markets never fails to make the list. One year after the crisis, Donald Tsang, the financial secretary of the Hong Kong Special Administrative Region (SAR) of China at the time, cited the failure to establish a strong and robust Asian bond market as one reason for the financial turmoil in East Asia. Going further, he deploringly asked, “How is it that we in Asia have never been able to replicate the success of the Eurobond market in this part...

  13. 10 The Arab Experience
    (pp. 291-328)

    The Arab region has a rich and diversified experience of regional economic cooperation, beginning in 1944 with the creation of the League of Arab States (Arab League). The league was among the first official regional institutions to be created after World War II. The aim of the league was to develop cooperation between Arab countries in all fields, including trade, finance, and defense.

    Unfortunately, the league was not very successful in securing a common Arab position in international affairs, owing to various political and economic factors that are not studied here. It also failed in a number of endeavors to...

  14. 11 An Analysis of Financial and Monetary Cooperation in Africa
    (pp. 329-356)

    Since the early 1990s there has been renewed interest among African nations in developing financial and monetary cooperation arrangements that help to strengthen their own financial institutions and complement their efforts to reach out to a rapidly globalizing world. The new arrangements are intended to help improve not only the mobilization of resources, both domestic and foreign, but also the regulation of institutions in order to avert crises in financial and exchange rate systems. The realization that strong financial systems are important in providing access to greater financial resources from more varied sources, particularly as countries pursue macroeconomic reforms, is...

  15. Contributors
    (pp. 357-358)
  16. Index
    (pp. 359-376)