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Reshaping Globalisation: A New Order for International Financial Markets

Heribert Dieter

CSGR Working Paper No. 103/02

August 2002




Since the Mexican crisis in 1994/95, a large number of developing countries and emerging markets have been hit by financial crises. Argentina is the last country that is suffering from dramatic economic problems. The main cause of these crises are the deregulation and liberalisation of financial markets that have been associated with the current model of globalisation. This model is not sustainable: Is has contributed to massive economic problems in the developing world without providing the promised rewards in form of higher growth and reduced poverty.

In this paper, the three main areas that influence the shape of financial markets are discussed and improvements are suggested: Firstly the exchange rate regimes of developing countries, secondly the shape of international credit markets and the asymmetric relationship between creditors and lenders and thirdly the main institution that provides partial governance, i.e. the International Monetary Fund.

International financial markets have gained in importance, but they still lack many of the features that characterises the national financial sector. If globalisation shall be continued, we need those governance structures, e.g. a lender of last resort, at the international level.

The reform agenda suggested in this paper is comprehensive, but rather evolutionary. Markets need rules and regulations, and today these are often not existent at the international level.

Keywords: Financial crises; financial markets; exchange rate regimes; bailing-in of creditors; IMF reform

Address for correspondence

German Institute for International and Security Affairs
Ludwigkirchplatz 3-4
D-10719 Berlin
Tel.: 49/30/88007-0
Fax: 49/30/88007-100

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