Como melhorar o sistema financeiro mundial, por Gordon Brown

Ways to fix the world’s financial system
By Gordon Brown

Published: January 24 2008 19:15 | Last updated: January 24 2008 19:15

Most political and business leaders gathered at the World Economic Forum this week agree on one thing: the global economy is facing its biggest test in more than a decade.

But we should also agree that turbulent conditions, throughout history, have been an opportunity for reform. This latest test of world financial systems presents a window in which to address fundamental issues that, if tackled properly, will improve economic management, regulation and the fight against inflation, and help us prevent similar crises in the future.

In their search for higher returns, investors underpriced the risks in a number of markets, particularly in the markets for complex derivative products. Recent turbulence, where loan risks were transferred to those least able to understand them, has exposed four big questions and issues for policymakers around the globe.

First, we need to respond to the significant underpricing of risk. We are now seeing a necessary repricing of that risk, but some markets are not functioning and availability of credit has been restricted.

If the manifestation of the problems was an underpricing of risk, the source of many of the problems was a deficit of transparency. That transparency deficit needs to be addressed – from within organisations, their auditors, the credit rating agencies and through regulatory requirements, leading to an increased understanding by firms, investors and regulators.

Second, as financial markets become increasingly interlinked, countries must ensure they have robust and effective cross-border crisis management arrangements. Central banks have already taken co-ordinated action to deal with these short-term problems. We now need not only strengthened national regulatory frameworks, but also strengthened international co-operation.

While financial flows and therefore risks have crossed borders effortlessly and reside in global companies, their supervisors and regulators are largely national. The world has no effective early warning system and no common approach to handling major global market disruptions. Many of the problems were identified in advance but were not acted upon. We need a clearer, more authoritative watchdog. Regulators need to be enabled to overcome their boundaries with common principles, shared analyses and information, and collaborative management of crises.

There is also much more we can propose for the long term to boost confidence in global markets by the actions we are taking to reform the international financial institutions.

The International Monetary Fund should be at the heart of this reform. It was built for the era of national, not global, economics – for dealing with local balance of payments crises, not global flows of capital. To be effective for a new era, the IMF should act with the same independence as a central bank – responsible for the surveillance of the world economy, for informing and educating markets, and for enforcing transparency through the system. It should work with the other global supervisors, such as the Financial Stability Forum and the Bank for International Settlements, to create the early warning system we need against the threats from financial sector developments. We should also consider how the IMF’s responsibilities for financial stability could be made clearer.

Third, we need to ensure that fiscal policy can play its rightful role supporting monetary policy, keeping the economies on track while maintaining sound public finances.

Fourth and foremost, the downturn will be compounded if we lurch back into protectionism as more people see globalisation as a threat, not an opportunity.

Amid these uncertainties, we need to show that we can respond to the impact of globalisation, but also show how the global economy can benefit ordinary working families feeling insecure about their futures.

Progressive business and government voices should come together to agree a manifesto for successful globalisation. That manifesto needs to stand behind free trade, open markets, flexible economies and investment in people as the only way forward for rich and poor alike. I will redouble my efforts with the US, the European Union, China, India, South Africa and Brazil to make possible a fair World Trade Organisation settlement on trade. Our prosperity, the credibility of the multilateral system and a chance for millions of poor people to break out of poverty are at stake.


The writer is the prime minister
Copyright The Financial Times Limited 2008