World Capital Markets

It is often pointed out that "for every bad borrower, and for every failed project, there is also a culpable lender or investor." This observation is particularly apt for the debate now raging in the capital markets: should private bankers and investment managers bear a greater share of the costs when financial crises erupt in emerging economies? Critics who have analyzed the "plumbing" of the world's financial architecture have thus far devoted enormous attention to the demand side—structural weaknesses in emerging markets. They have excoriated the IMF for ineptitude and policy mistakes. But the authors of this study argue that financial leaders of the G-10 nations (industrial nations that were hardly affected by the crises of 1997-98) owe a responsibility—both to their own citizens and the emerging markets—to take a far more vigilant stance.

Dobson and Hufbauer criticize the supply side of world capital markets and ask how G-10 capital suppliers can reform their own financial systems to make the world safe for large-scale international capital flows. They draw a comprehensive picture of international finance through an extensive review of capital flows, the major financial players behind these flows, and the balance between costs and benefits of international capital movements. The authors analyze the implications of changing the rules of the game and recommend specific policy measures.

Wendy S. Dobson, Visiting Fellow (1990-91, 1998), is Senior Fellow at the Faculty of Management at the University of Toronto. She served as Associate Deputy Minister of Finance in the Canadian government and Canada's G-7 Deputy (1987-89). She was president of the C.D. Howe Institute (1981-87) and has written on Canadian issues in macroeconomic and trade policy and on international economic relations, including Economic Policy Coordination: Requiem or Prologue? (1991) and coauthor of Financial Services Liberalization in the WTO (1998) with Pierre Jacquet. She is a member of the Advisory Committee of the Institute for International Economics.

Gary Clyde Hufbauer, Reginald Jones Senior Fellow since 1992, was formerly the Maurice Greenberg Chair and Director of Studies at the Council on Foreign Relations (1996–98), the Marcus Wallenberg Professor of International Finance Diplomacy at Georgetown University (1985–92), senior fellow at the Institute (1981–85), deputy director of the International Law Institute at Georgetown University (1979–81); deputy assistant secretary for international trade and investment policy of the US Treasury (1977–79); and director of the international tax staff at the Treasury (1974–76).