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The view from Davos
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February 2, 1999: 7:19 a.m. ET
Financial leaders, experts differ on the new financial architecture
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DAVOS, Switzerland (CNNfn) - For some attendees at the World Economic Forum in Davos, globalization refers to the dynamic forces that are bringing world markets together. However, for others, it's a dirty word.
Roiled by huge outflows of capital from faceless investors, many emerging market nations called for a new financial architecture that would include governmental supervision of market speculators, particularly hedge funds.
"We cannot afford national economies to be destabilized by somebody putting a finger on one button of his computer which makes billions of dollars move across the world," Yashwant Sinha, India's finance minister said on Sunday.
"It's extremely important that we put our heads together and arrive at some international consensus in order to make international capital flows more disciplined, more rule-based and replace the current chaos with order. If that does not happen, I'm sorry, globalization will remain, for many, a 13-letter dirty word."
Indeed, as finance ministers from the world's richest nations prepare to discuss the financial architecture later this month during the G7's meeting in Bonn, the message from Davos shows there is considerable disagreement over what the blueprint should look like.
The World Economic Forum produced a lot of talk, but few answers about what the new financial architecture should look like
On Tuesday, Gerhard Schroder, the Chancellor of Germany, said the plan should include a way for the United States, Japan and Europe to manage currencies by creating so-called currency bands or target zones for the yen, dollar and euro.
However, he acknowledged the proposal faces opposition from the United States.
"We have to have the United States of America on board," he told reporters. "We cannot just go out on our own."
On Saturday, Treasury Secretary Robert Rubin said the United States prefers to allow currency markets to operate freely.
"The floating exchange rate system is the worst possible system, except for all the others," Rubin said.
Rubin also voiced concerns about a pre-qualification system at the International Monetary Fund that would allow countries which meet certain criteria to have swift access to contingency funds during a crisis and he questioned whether an early warning system would work.
"Nothing in my 26 years on Wall Street or my six years in government suggests that there is any predictive capability even remotely reliable enough for such a system," Rubin said. "In addition, the early warning itself could create precisely the instability and even panic that such a system is designed to prevent."
Transparency was a hot topic at Davos
Transparency, or the ability to have timely access to information about a country's finances, is one area where G7 leaders are likely to agree.
During the conference, Rubin agreed with his European counterparts that investors need to have better access to information so, in times of crisis, emerging markets are not devastated by huge outflows of capital just as they are trying to bounce back.
What to do with the IMF
The International Monetary Fund, which has taken a lot of criticism for the way it has handled the financial crisis in countries like Korea, Indonesia, Russia and Brazil, is also likely to be a big part of the new financial architecture.
Some experts, including, financier George Soros, suggested the IMF should be transformed in a lender of last resort that would allow countries which get into trouble to have access to cash before things spiral out of control.
But others believe the IMF is not up to the task.
Economist Rudi Dornbusch told the conference said the IMF needs to be revamped and he called on chief Michel Camdessus to resign. 
-- by senior producer Jerry Dubrowski
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