But the difficulty in spelling out underlying reasons must not become an excuse for lack of analysis and preparation. In order to make cross-border crisis management work, we may have to consider sacrificing some mystery – even if only amongst ourselves – for greater effectiveness. The most recent cases of official emergency liquidity support to UK banks occurred in the early 1990s, when the Bank lent to a few small banks in order to prevent wider loss of confidence in the banking system. The Memorandum of Understanding (MoU) between the Treasury, FSA and Bank which sets out our current roles in maintaining financial stability makes clear that decisions on support operations now rest with the Chancellor, acting in the light of advice from both the Bank and the FSA. Following the early 1990s experiences, Eddie – now Lord George – discussed various options for intervention. 3 He argued that, in deciding whether to provide support, the authorities should: explore every option for a commercial solution before committing public funds; structure any support such that losses would fall first to shareholders and any benefits fall first to the authorities; not, in normal circumstances, lend to a firm known at the time to be insolvent; and, look for a clear exit from provision of the lending. These guidelines go more to the question ‘how’ rather than the question ‘when’ the authorities should intervene, and they were drawn up before the globalisation of banking and capital markets had got fully underway.
Greater market access will be an essential instrument for improving the economic conditions of those living in poverty and I welcome the recent initiative taken by the Fund and the World Bank aimed at supporting the Doha round. At this stage, the global momentum towards trade liberalization must continue effectively, yet there is reason for concern over the way that the current international trade negotiations are proceeding. Progress has been slower than was previously hoped, especially in light of the disappointing result of the WTO meeting in Cancun. Another worrying aspect is the trend of bilateral trade agreements instead of multilateral agreements. To support low-income countries, the industrialized nations should reduce their overall levels of support for agriculture and textiles and direct the remaining subsidies away from trade-distorting price support towards income support. The advantages of trade liberalization are greater than the risks associated with it. Reforms in these areas will benefit both the industrial and the low-income countries. There might, however, be temporary or transitional difficulties as increased liberalization can entail a reallocation of labor between sectors. Governments should be ready to inform and educate their citizens and prepare safety nets to make the transformation more acceptable, both domestically and internationally. High-income countries ought to be prepared to assist developing countries in such undertakings. Low-income countries must also open up their markets in order to increase the volume of trade between each other as well as with industrialized countries. Bilateral and regional trade agreements have become increasingly common in recent years.