Global capital market volatility and the developing countries - Lessons from the East Asian crisis

The emerging global economy is characterised by rite virtually free movemen t of capital, while labour is still essentially confined to the nation stat e. The East Asian crisis has revealed the extent to which international fin ancial 'architecture' does not yet correspond to this reality - let alone r esolve its inconsistencies. The consequent public action problem is analyse d in this article by first addressing the global causes of emerging market volatility and the failure of international financial institutions (such as the IMF) to contain it. The current attempt to extend multilateral bank re gulation towards emerging markets is shown to suffer from severe limitation s, as do proposals for mutual regulatory recognition and a global credit in surance system. The prospects for establishing a binding set of rules for g lobal investment, with logical consequences for both multilateral capital t axation and international debt resolution, are improving, but remain proble matic due to the 'missing institutions' required to create an orderly globa l capital market. The article concludes with an unexpected implication for the concept of citizenship itself.