NO.125

The Prime Minister’s Task Force on International Financial

Reform (comprising private and public sector members chaired by the Treasurer) has

completed its report and presented it to the Prime Minister.

In keeping with the Prime Minister’s request, it has made a number

of constructive and practical suggestions on how Australia can contribute to strengthening

the international financial system and achieving greater stability in global capital

markets.

The Task Force comprised several of the most senior representatives

from the Australian banking and financial sector along with the heads of a number of

Government Departments and the Governor of the Reserve Bank. Successful reform of the

international financial system will require the involvement of the private sector.

The Task Force identified a number of key principles and elements for

reforming the international financial system so as to produce greater stability in capital

flows, minimise the risk of future financial crises and provide a more effective mechanism

for managing them when they occur. It noted, however, that there is no single measure to

achieve these objectives. Reform will require progress across a wide range of fronts with

much of it focused on achieving sound policies at the national level.

Importantly, the Task Force observed that Australia is well placed to

make a significant contribution to efforts to reform the international financial system.

The Australian economy and financial system is in a very sound position and we have a

great deal of experience we can offer emerging markets.

Some of the specific proposals identified by the Task Force include:

• Supporting the establishment of a working group, as called for by APEC Leaders, to

  examine appropriate disclosure standards for highly leveraged hedge funds and outlining

  some of the issues that the group would need to consider.

• Playing an active role in the establishment of a working group on improved crisis

  management, as also recently called for by APEC Leaders, by identifying some of the key

  issues that will need to be considered if the use of collective action clauses and

  improved arrangements for creditor-debtor consultations are to be accepted by private

  sector lenders and become standard for sovereign borrowers. The Task Force Report

  highlights some of the issues an international working group on this issue will have to

  address along with emphasising that extensive consultations with private sector leaders

  will be required.

• Proposing that countries prepare, and publish, a report on the extent to which they meet

  recognised disclosure standards. The Task Force noted that Australia could take the lead

  in the preparation of a ‘Transparency Report’, which would provide a format for

  other countries to follow.

• Working actively in regional economic forums, such as APEC, the Executive Meeting of

  East-Asian Pacific Central Banks and the Manila Framework Group, to advance reform

  initiatives and cooperation on financial policy issues. The Task Force noted that

  Australia’s hosting of the Manila Framework Group meeting in the first half of 1999

  provided an opportunity to advance some of the reform proposals, such as the concept of

  countries producing Transparency Reports.

• Offering to act as a regional coordinator for submissions to a Basle Committee on

  Banking Supervision review of capital standards. The Task Force noted the need to review

  these standards on an ongoing basis to ensure they remain commensurate with the demands of

  an increasingly integrated, complex and evolving financial system.

• Advancing the concept of peer reviews of a country’s prudential supervisory

  arrangements through the establishment of a new international secretariat, perhaps jointly

  sponsored by the IMF and World Bank and other international organisations, to coordinate

  such reviews and provide the necessary expertise.

• Building on the important role Australia is playing in providing technical assistance to

  the economies in the region that are seeking to improve their economic governance by

  increasing the cooperation between the Government, Australian financial institutions and

  private sector organisations in the provision of such assistance.

• Promoting the need for the international community to better coordinate the provision of

  technical assistance to the emerging markets. The Task Force noted that the World Bank, in

  consultation with the other international financial institutions, should take the lead in

  improving the coordination of such assistance.

• Encouraging international efforts to increase trade finance for the crisis economies and

  providing technical assistance to facilitate bank and corporate restructuring.

• Proposing and actively encouraging that the United Nations Commission on International

  Trade Law undertake the development of an international model law on insolvency and

  participate in monitoring implementation.

• Providing technical assistance to regional economies on developing and managing a

  sovereign bond market and proposing that an appropriate working group consult on issues

  relating to debt management in emerging economies.

• Proposing that consideration be given to ensuring how greater transparency with respect

  to foreign investment laws and policies can increase a country’s attractiveness to

  foreign direct investment.

• Supporting efforts by the World Bank and IMF to achieve closer collaboration and

  introduce more innovative and flexible financial support packages.

• Proposing that a Financial Sector Policy Forum by convened, perhaps jointly sponsored by

  the IMF, the World Bank and other international institutions, to enhance international

  cooperation and provide a standing mechanism to respond to future international financial

  policy issues.

As outlined above, the Task Force has presented a wide range of suggestions as to how

Australia can contribute to international financial reform. The Government will be

actively pursuing many of these suggestions with its regional neighbours and in various

international forums.

CANBERRA

21 December 1998

Contact: M.J. Callaghan

Department of Treasury

02 6263 3754