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New International Financial Architecture, Is It the Answer to the Stability of International Financial System

New International Financial Architecture, Is It the Answer to the Stability of International Financial System

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Published by Erika Angelika

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Published by: Erika Angelika on Jan 01, 2010
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09/13/2010

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 Erika . 0706291243 . Jurusan Ilmu Hubungan Internasional . Fakultas Ilmu Sosial dan Ilmu Politik . UniversitasIndonesia
English for International Relations Review
Name : ErikaNPM : 0706291243Source :
Susanne Soederberg. “On the Contradictions of the New International Financial Architecture: Another ProcrusteanBed for Emerging Markets?”,
 
in
Third World Quarterly
, Vol. 23, No. 4 (Aug.,2002), pp. 607-620, accesed fromhttp://links.jstor.org/sici?sici=0143-6597%28200208%2923%3A4%3C607%3AOTCOTN%3E2.0.CO%3B2-C
New International Financial Architecture: Is It the Answer to the Stability of International Financial System?
The growth of volatility in international financial system urges international institutions to take astrategy to strengthen it, and the strategy is done by the creation of New International Financial Architecture(NIFA). This new strategy consists of at least three important features: the Group of Twenty (G-20), theFinancial Stability Forum (FSF), and the Reports on Observances of Standard and Codes (ROSCs). Themain objective of these three features is to achieve systematic stability in global financial system, byensuring that emerging markets play by the rules dictated by powerful transnational financial capitals, aswell as to strengthen the existing imperative of free capital mobility. The NIFA itself remains to be theanswer for the failure of Washington Consensus. Washington Consensus is deemed to be a failure because itmakes the international financial markets become dependent on Americ
a‟s financial system; so whenAmerica‟s financial system is collapsed, the international financial system is also coll
apsed. The WashingtonConsensus is also deemed to be another US way to spread its hegemonic power, by promoting its owninterest through Washington Consensus. Washington Consensus encourages government to lift barriers if fulleconomic expansion is to be achieved. The Washington Consensus then gives two important consequencesfor the developing world. First, in increasing the dependence of emerging market economies on short-termflows, and second, in causing a concentration of power in a number of institutional investors wheredecisions of capital allocation have become more and more centralized.The failure of Washington Consensus then leads to the free capital mobility policy, introduced bythe Interim Committee of the IMF. This policy basically promotes the capital liberalizations among allcountries in the world. Although capital liberalizations seems to be a good solution in stabilizinginternational financial system, this policy later gives one big problem : the instability of foreign exchangemarkets, due to the lack of structural coherence for continued capital accumulation. Paul Krugman oncestated that foreign exchange markets behave more like the unstable and irrational asset markets described by
 
 Erika . 0706291243 . Jurusan Ilmu Hubungan Internasional . Fakultas Ilmu Sosial dan Ilmu Politik . UniversitasIndonesia
Keynes than the efficient markets described my modern finance theory. This instability of foreign exchangemarkets will continue to be a source of economic difficulty, if not handled carefully. This will then lead tothe needs for a system to regulate the flow of capital, a system that is implemented both uniformly,universally, and fundamentally within a new international system, or what some have called a new BrettonWoods system. On the other hand, there was a need among G-7 countries to convince that the continuationof free capital mobility was viable and desirable, and to pursue it universally is difficult, due to the negativesentiments arose in the world towards US and US-led constitutions, especially in East Asia. All theseproblems lead to the emergence of NIFA.As I have stated before, NIFA consists of G-20, FSF, and the ROSCs. The G-20 includes the G-7,
a representative from the European Union, the IMF, the Fund‟s new International Monetary and FinancialCommittee (IMFC), the World Bank, the Bank‟s Development Committee, and the „systematically
impo
rtant‟ emerging market countries: Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi
Arabia, South Africa, South Korea and Turkey. The G-20 is made to lock these important countries and toco-opt them into the rules of the advanced industrialized countries, while the aims of G-20 are to reform andstrengthen the international financial system as defined by IMF and the World Bank. FSF was first convenedin April 1999, and was established to promote international financial stability, to improve the functioning of markets, and to reduce systemic risk. The membership of FSF is confined to a total of 40 members from G-7countries. ROSCs consists of eleven areas where standards are important for underpinning macroeconomicand financial stability: data dissemination, fiscal practices, monetary and financial policy transparency,banking supervision, insurance supervision, securities market regulation, payments systems, corporategovernance, accounting, auditing, insolvency regimes, and creditor rights. The primary aim of ROSCs is topromote the proper management of financial liberalization in the developing world.NIFA unquestionably brings improvement in the international financial system. Nevertheless,NIFA also brings harms to the international system. For example, Susanne Soederberg said that NIFAincreased and centralised bourgeoise power and authority to guarantee the freedom of entry and exit of internationally mobile capital, meaning that NIFA actually worsens the condition of unbalanced powerdistribution in international system. Not to mention that NIFA tends to blame emerging countries as thecause of volatility of international financial system, and tends to absolve the international financial market.One of NIFA features, the ROSCs, is deemed to act out of bounds by expanding octopus-style observation inthe public sectors, as well as to move into the private spheres of emerging market economies. These

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