The World Crisis: Reforming the International Financial System

No one any longer doubts that this is the most serious crisis that the world economy has faced since at least the 1930s. Nor is there any remaining doubt that this crisis affects virtually all areas, developed and developing, with large reserves or small. (The only exceptions are a handful of countries, like Nigeria, that are not integrated into the world financial market, export overwhelmingly primary commodities, in which the central government receives most of the revenue, and that budgeted for prices that now appear realistic but seemed conservative a year ago.) It is a crisis that started in the financial sector of what was thought of as the country with the most-sophisticated financial system, and that has spread almost universally and with startling rapidity by virtue of either financial or trade interdependence or both. Some of us thought that a number of the crises of recent decades (notably the East Asian crisis) better reflected the inadequacies of the financial system than of the victims. This time around no one doubts that the blame lies with the financial system and those who have operated it. Preventing a recurrence of this type of crisis, which is a quite different exercise from overcoming the present crisis, accordingly demands reforms to the financial system. The question discussed in this essay is: What reforms? What needs to change?