Global financial markets missed an opportunity a decade ago to fix their unregulated system, but now they have a second chance, says the man who led the International Monetary Fund during the Asian currency crisis.
Michel Camdessus said Wednesday that financial markets need international regulation in today's global economy to avoid future meltdowns.
A major reform of global banking was considered at the time of the Asian financial crisis in the late 1990s, but the reform was forgotten once the crisis passed, said Camdessus, who led the IMF for 13 years until he resigned in 2000.
"There was a campaign against over-regulation, so it was not done," he told The Associated Press. "You must do it now. You need a central authority for supervision, for proposing measures and checking their implementation."
The IMF would be "perfectly positioned" to assume a wider regulatory role. But "you can find other institutions if you don't like the IMF," he said, implicitly acknowledging widespread distrust of the lending agency.
Camdessus cautioned against allowing vested interests to again block action that he said was overdue. "Never in history have the criminals favored regulation," he said, anticipating resistance from financial institutions.
As head of the IMF through a series of crises, Camdessus virtually dictated the restructuring of failing economies as a condition for extending loans. His tenure, which ended when he resigned in the middle of his third five-year term, saw both successes and failures, but many receiving countries resented the strict monetary rules the IMF imposed for bailing them out.
He said Wednesday the US$700 billion package proposed by the U.S. administration to resolve the current financial crisis should avoid a 1929-like crash. But it will have long-term consequences in higher interest rates and less flexibility for the U.S. dollar.
It also could lead to a tightening of resources for overseas development aid, he said.
He was critical of the U.S. regulatory authorities, and particularly of former Federal Reserve chairman Alan Greenspan, for refusing to rein in the markets. But he also blamed other governments for failing to speak out.
"We are in a globalized market — much more than we believed. Even if the origin of the crisis is in the United States, the responsibility for the crisis is broadly shared around the world," he said.
"The international community was not outspoken enough to denounce the risks" created by operations that never appeared on the balance sheets, he said.
Camdessus, 75, was in The Hague for a seminar on resource scarcities, focusing his address on the lack of water and sanitation in rural Africa. He appealed for US$14 billion (euro9.5 billion) in grants over 10 years to alleviate water stress.