The US and international financial reform

Pressures for strengthening the international financial system have been building up for some time. It now appears that the appointment of James Baker as US Secretary of the Treasury - and the different perception of US national interests he brings to the job - have increased the prospects for reform. How the present system works and the ways in which it may be changed have major implications for developing countries and the purpose of this Briefing Paper is to describe the background to the Baker initiatives and to analyse these, with particular reference to their implications for the International Monetary Fund (IMF) and World Bank (IBRD).

The paper concludes that, despite drawbacks, the Baker initiatives are important. They mark a break with the laissez faire approach to international policy co-ordination which has dominated since 1978. They assign greater importance to, and support for, the Bretton Woods institutions. They also recognise the need for a fresh approach to the debt problem.