At the Group of Seven summit in Halifax two years ago, leaders of the world's major economies -- still jittery over the Mexican peso collapse -- laid what was thought to be the groundwork for better early warning systems and improved ways to stop regional financial crises from spreading. These included adopting a Canadian initiative for clearer, more timely reporting by national governments on their fiscal and monetary conditions.

However, as Finance Minister Paul Martin pointed out in a sobering speech this week, despite taking these steps new financial crises have erupted. Stabilizing them quickly remains a problem. ``What we were striving to prevent, in fact, occurred,'' Martin told a luncheon hosted by the University of Toronto's G8 Research Group. ``This raises the issue squarely if what we did in the wake of the peso crisis was adequate.''

Clearly it wasn't. The recent turbulence in Asian currency markets, which started in Thailand, triggered shocks that hit markets everywhere to some extent or another, and are still continuing. The Brazilian stock market dropped a shuddering 14% in just one day.

This kind of instability threatens the growth prospects of most economies. It also jeopardizes progress on global trade and investment liberalization, a major concern for Canada because we are so heavily dependent on trade. Martin said the global economy can't sustain chronic disruptions. ``We must move from crisis management to crisis avoidance,'' he added, because the contagion can spread like wildfire.

Most of the focus is still on crisis management, such as support packages to prevent further economic damage. Japan's finance minister has proposed a $100-billion regional emergency fund to help cope with the fallout of the Asian currency turmoil. This would complement activities of such groups as the International Monetary Fund.

Rightly, Martin is cool to this idea. The IMF's capacity has already been expanded by measures taken at Halifax. It would be foolish to have another fund administered under conditions separate from those laid down by the IMF, whose influence could be weakened if it had a rival.

The important priority is strengthening the IMF's role in bringing about improved regulatory and surveillance practices, and insisting on better overall governance. This should include a tougher approach to such issues as bribery and corruption, which the IMF and the World Bank are starting to take in return for financial assistance.

What the Asian crisis has cruelly exposed is that the whole area of financial institution supervision needs more urgent and wider attention than was contemplated at the G7's Halifax meetings. Deregulation in the financial services sector can bring big benefits to consumers and businesses. But it must be accompanied by improved disclosure and more adequate monitoring of the underlying strength of financial firms. The collapse of bank and near-bank institutions can quickly spread havoc.

These issues are now at the heart of the G7 agenda, Martin said, as an intense reassessment gets under way. They will also dominate discussions at the summit Canada hosts this month for leaders of the Asia-Pacific Economic Co-operation forum.

When they gather in Vancouver, the leaders should look carefully at proposals the private-sector APEC Business Advisory Council has just presented to Prime Minister Jean Chretien. Several aim at promoting greater financial market stability. They include improving the regulatory process, setting up modern clearing and settlement systems, tightening and harmonizing accounting standards, broadening local investor bases and liberalizing rules for the entry of foreign financial services firms.

Some governments may see some of this as infringing on sovereignty. But in a global economy where trade and financial transactions are interconnected as never before, the consequences of ignoring this kind of action are immense. As Martin said so aptly -- ``no one has anywhere to hide anymore.''

The finance minister's speech in Toronto was also the occasion for the launch of an endowment fund for a University of Toronto scholarship in the name of Bob Catherwood, FP's widely respected, long-time editorial page editor who died this summer. ``He was a beacon of enlightenment,'' Martin said in a tribute. ``He had a tremendous insight and perspective on Canada, and took this beyond its borders.''

Bob was also instrumental in getting media accreditation and onsite experience at the G7 summits for Canadian university students affiliated with the University of Toronto's G8 Research Group, the world's leading centre of information and analysis on top-nation summitry.

Fittingly, the Robert H. Catherwood scholarship will be awarded annually to cover tuition costs for a U of T undergraduate studying international relations. Contributions to the endowment fund can be made to: Trinity College - Catherwood Scholarship, Office of Convocation, 6 Hoskin Ave., Toronto, Ont., M5S 1H8. Charitable receipts will be issued.

	This Information System is provided by the University of Toronto Library and the G7 Research Group at the University of Toronto.
	Please send comments to: g8@utoronto.ca Revised: November 28, 1997.

All contents copyright, 1997 University of Toronto unless otherwise stated. All rights reserved.