Governing global risks: The evolution of policy capacity in the financial sector

Jack Seddon (St John's College, Oxford)

Professor Louis Pauly gave a presentation to PEFM based on a paper entitled, “Governing Global Risks: The Evolution of Policy Capacity the Financial Sector.” He challenged his audience to think about the emergence of a "transnational prevention state" (transnational prevention arrangements across borders that translate into effective policy capacity). The paper is part of a work in progress for a book with Edgar Grande.

Professor Pauly argued that this policy capacity is already emerging and developing to deal with global risks and uncertainties. It involves three sets of objectives and three arenas of risk politics. The first arena is the technocratic one focused on risk measurement, assessment, and monitoring. The locus of action here may be seen as shifting from formal international organizations to "clubs", like those now engaged in the so-called Basel Process (Basel Committee, IOSCO, IAIS, and FSB). The second arena involves compensation and crisis prevention, where inter-state collaboration and public-private partnerships are most evident. The third arena involves emergency management and resolution, where ad hoc collaboration (at most) among key finance ministries and central banks is at the moment the dominant trend.

IMF and bank creditors: Who's in charge when a country can't pay?" and "Stabilising an unstable world: Is there a better future for international finance?

Jack Seddon (St John's College, Oxford)

Dr. James Boughton, the former official historian of the International Monetary Fund and current CIGI Senior Fellow, shared his experience with PEFM through two presentations addressing the following topics: first, "IMF and bank creditors: Who's in charge when a country can't pay?"; and, second, "Stabilising an unstable world: Is there a better future for international finance?"

Addressing the question of who's in charge, Dr. Boughton provided a fascinating account of an "un-holy" trinity – to paraphrase Cohen's apt portrayal of the Mundell-Flemming trilemma – that have competed to shape the international community's responses to countries facing payments problems. The trinity comprises the IMF, the US Treasury and other bilateral official bodies and international banks and bond holders. While these players share a common interest in wanting to see the country in trouble recover and repay its debts, Dr. Boughton eruditely showed how their particular preferences will differ. In particular, he showed how bilateral creditors must respond to strategic and political considerations that will not concern the private sector, while the IMF is beholden to its mission and various stakeholders in sometimes unobvious ways.