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Box 6-3.The New International Financial ArchitectureThe international community, under U.S. leadership, has proposed aset of reforms to strengthen the international financial system. On thegeneral principle that a market-based system provides the bestprospects for a sound global economy, these reforms seek to improvecrisis prevention and the international community’s response to crisisin ways that allow markets to operate effectively.Last year’s Economic Report of the President described the backgroundbehind the major reform proposals and outlined their chief features.Since then, work has continued within the Group of Seven (G-7)large industrial countries and with key emerging market countries toexplore ways to improve and implement these reforms. The UnitedStates has continued to play a leading role in these efforts. At its June1999 summit in Cologne, Germany, the G-7 released a report on financialarchitecture. The report emphasized reforms in six areas:• Strengthening and reforming the international financial institutions—theInternational Monetary Fund (IMF) and the World Bank—and arrangements for international cooperation• Enhancing the transparency of financial institutions and marketsand promoting best practices, to enable market participants to makeinformed judgments about risk and provide greater incentives forpolicymakers to implement sound policies• Strengthening financial regulation in industrialized countries, so thatcreditors will act with greater discipline and assess more prudentlythe risks associated with their lending• Strengthening macroeconomic policies and financial systems inemerging markets, to allow borrowers in emerging markets to benefitfully from integration into the international financial system• Improving crisis prevention and management and involving the privatesector, to ensure that all participants will expect to bear the consequencesof the risks they take, and to reduce the risk of financialmarket contagion• Promoting social policies to protect the poor and most vulnerable.The Administration has pushed forward with this effort in severalways. It has made the terms of exceptional financing support moremarket-based through the creation of the IMF’s SupplementaryReserve Facility and, most recently, its Contingent Credit Line (CCL). Ithas also helped countries develop stronger national financial systems,including through the incentives embodied in the terms of the CCL.continued on next page...Chapter 6 | 229