Global financial markets have increased the vulnerability of countries to sudden, destabilizing runs on their currencies and the industrialized countries should endorse international efforts to combat this danger, Michel Camdessus, the International Monetary Fund managing director said yesterday.
The IMF has to improve its monitoring capability and improve its policy discussions with countries which may face currency destabilization, said Camdessus in a speech to the Public Policy Forum in Ottawa.
The impact of the Mexican peso devaluation has underlined the need to enhance the IMF's ability to cope with such events, he said.
International currency markets now regularly turn over US$1 trillion a day.
''Financial globalization has heightened the challenges of fostering stable foreign exchange and financial markets, and of preventing and resolving financial crises,'' Camdessus said.
''This carries important implications . . . for the IMF as the central institution of the international monetary system.''
He urged the G-7 leaders, who are meeting next week in Halifax, to support moves to make the IMF more able to respond to these challenges.
The IMF needs the financial resources to be able to deal with crises such as Mexico's when these events occur and Camdessus said the fund is looking for a doubling of the financial contributions by its member states.
On the G-7 agenda is a proposal for an ''emergency financing mechanism'' for the IMF that would allow it to quickly deal with currency crises. Camdessus said the IMF should explore ways to increase its ability to borrow from member states in times of crisis.
Beyond the need for emergency action, however, the IMF's financial capacity also should be enlarged.
''We must see what action is needed to ensure the Fund's resources are adequate to meet the demands the Fund may face in the closing years of this century and beyond,'' Camdessus said.
The next contribution review for IMF members should be completed before the end of next year.
''The review should, in my assessment, lead roughly to a doubling of quotas, just to ensure that the size of the Fund keeps pace with the growth in the world economy,'' he said.
Camdessus said that in Eastern Europe the countries transforming their economies from communism to market-based systems are making good progress with half of them beginning to show growth after years of decline and stagnation.
At this point, Camdessus said these countries should be admitted into the IMF with full membership rights.
The problems of the poorest countries in the world which are mostly in Africa, will be at the forefront of concern well into the next century.
More financial resources will be required to help them and Camdessus said the IMF can contribute by being allowed to sell a portion of its gold reserves.
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