So far, regulation of capital movement has been placed on a global scale. Countries have not been quite serious about such capital movements in spite of the rapid financial integration world over during the last 15 odd years, where trillions of dollars move at amazingly high speed every day. They have not had the will to deal with the fact that short-term capital flows in particular, can be very harmful for an economy and more so in desperate cases. Though in an ideal world it would be good to avoid such loans, it really is not apractical option. Hence prudent management of these funds is very much needed. But they, along with lending agencies have believed in the power of the market to correct the aberrations that surface in capital mobility. So, as long as there was money to be made, the industrialised did not feel the necessity to keep a watch on capital movements. In fact, they were at all times pushing the poorer countries to embrace capital account convertibility like never before. In some cases, convertibility was a condition for borrowing funds from lending agencies. Their strong belief in `market-correction' and arguments that checks or restrictions on capital movements would adversely effect the globalisation and integration of the world economy seems to have hit them now.

At the end of the day everyone looks for scapegoats once a crisis strikes. A large part of the blame must be placed on international creditors who enter into shockingly huge exposures in the belief that governments and lending agencies would act as thelender of last resort. It is believed that exposures in Russia alone are around $200 billion. And the wealth destruction due to this crisis alone is around $120 billion. And if the fall in stock markets in New York, London and Tokyo are taken into account, the destruction could be well over $200 billion.

These volatile currency movements have lead to herd-like behaviour by investors and ultimately crashed the real economies. Then they spread like wild fire to other emerging economies like we saw in Russia and Brazil after south-east Asia. Against this backdrop of worsening currency crisis, leading to financial contagion, the time seems ripe for a global institution to discipline and regulate the global financial market.

In the present international financial system, we have witnessed (questionable) management of crisis but not its prevention, though the World Bank has made sincere attempts in this direction. Their three-day seminar in Bangkok in April was a case to that. The conference reviewed theresults of various surveys conducted in the region which provides quantitative information on production, exports, employment and the financial situation of firms. Though the exercise was good, it was still a post facto exercise - once again the rescue operations came in after the crisis. And yet again nothing has gone in the direction of preventing a crisis from happening - even after getting adequate warnings. But then predicting a crisis is easier said than done. Last year a lot of papers have claimed to identify the factors that cause a financial crisis. Using sophisticated econometrics, observations are made on the relationships between indicators like a country's exchange rate overvaluation, slowing economic growth, rising debt burden and so on. Weightage is also given to previous crashes to spot any patterns that might link them together. Based on these patterns an index is created, which gives out the overall probability of a crisis. Though these models suffer from various drawbacks, the most basic ofthem is that these models have been developed since the Asian crisis and so it is very difficult to judge them by a similarly stringent standard. For instance, some of the models have given a crisis-probability range of 20 per cent to 100 per cent for the same economy. These models also run the risk of data mining, wherein analysts look at variables without trying to establish how they might have caused a crash. The opposite risk is of model bias, wherein a model is inspired by one particular crash. Having said this it seems indeed difficult for such models to help predict crashes in the near term, though it could well be a model of the future. Nevertheless, they can still be used as an extra tool though not as a substitute for market judgement.

Having talked about a regulatory body, one which can attempt predicting and preventing financial crashed, one striking observation is that if the WTO could replace GATT to tackle with the complications of global trade in changing times, one may not be off-track tothink in terms of a new body to tackle with the complexities of financial markets. Could a change be on the cards?