Article Analysis: On the Contradictions of the New International Financial Architecture: Another Procrustean Bed for Emerging Markets?

Topics: International Monetary Fund, Economics, International trade Pages: 5 (1391 words) Published: September 22, 2014
Summary: what is a main concept in the case or article?

The main concept of the article is to explain why the New International Financial Architecture (NIFA) was created and who is being benefited from this approach. The discussion begins with an examination of the power structures of the global political economy by focusing on the continued dominance of the USA. The article presents the contradictory relations between USA and global finance will be explored so as to shed more critical light on the NIFA. This article critically examines the NIFA by linking its institutional components to the larger contradictions of the capitalist inter-state system. A contradiction is the constant promotion of financial liberalization in emerging markets by US-led international financial institutions (IFIs), and the frequency of financial crises in the developing world, on the other. The article suggests that the NIFA is an attempt to stabilize and legitimate the scaffolding of the existing imperative of free capital mobility.

Situations that arise in the case or article.

External debt and domestic financial crises generate substantial social costs. As it happens, poor sectors of society pay a substantial share of the costs of adjustment to debt crises, whereas they benefit rather marginally from financial booms. The experience of many developing countries in several regions of the world also indicates that the social effects of debt crises continue to afflict countries even after several years of successful economic restructuring and recovery. The recent crisis has demonstrated a fundamental problem in the global economy: the enormous discrepancy that exists between an increasingly sophisticated and dynamic international financial world, with rapid globalization of financial portfolios, and the lack of a proper institutional framework to regulate it. In summary, existing institutions are inadequate to deal with financial globalization. This systemic deficiency and the associated threat of recurring crises have create the need for a comprehensive reform of the international financial system, geared to prevent costly crises and to manage them better if they occur.

Eager to defend the feasibility of continued mobility of cross- border financial flows, in the hope of strengthening the international financial system. This strategy has been referred to as the New International Financial Architecture (NIFA). The NIFA should be seen as political reactions of the underlying paradoxes of global capital accumulation based on free capital mobility. The NIFA was an attempt to revise the rules and standards so as to reproduce, the nature of the Washington Consensus.

Possible solutions to such situations (applying the lesson of the day)

The goal of redesigning the international monetary and financial system is to harness the potential of private international financial flows to the service of stability and growth in the world economy. It is important that the various components of the architecture (NIFA) be addressed at the same time. These components are interrelated, and putting one or some of them in place in isolation will have limited impact in reducing the disruption caused.

Improvements in supervision and regulation of financial firms are preventive measures that can reduce the incidence of crises and hence the need for IMF resources to cure them. However, since supervision and regulation are far from foolproof, financial crises and contagion will remain problems that need to be dealt with at the international level. Macroeconomic coordination and surveillance are essential to manage both inflationary and deflationary situations, which lie behind boom-bust financial cycles. Regional and sub-regional institutions could play an essential role as complements to IMF funding and surveillance activities, as well as in surveillance of domestic financial regulation and supervision.

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