INSTITUTE OF INTERNATIONAL FINANCE PRESSES FOR NEW CRISIS STRATEGY AIM IS TO AVOID ANOTHER MEXICO

INSTITUTE OF INTERNATIONAL FINANCE PRESSES FOR NEW CRISIS STRATEGY AIM IS TO AVOID ANOTHER MEXICO

An international banking group Thursday called for a new strategy to help both avert and manage future Mexico-like financial crises.

To help avert crises, said the Washington-based Institute of International Finance, developing nations must provide more comprehensive and timely economic data. The institute, which represents 196 banks and mutual funds in 35 countries, said it will start pressing nations to do that.By next March, said Charles Dallara, the institute's managing director, his group will begin rating each major developing country on how well it provides its economic data. So far, the institute has found that not a single major developing nation is fully reporting all needed data in a timely way.

A set of standards to guide developing countries on releasing the data has been proposed by the institute.

The institute also urged the International Monetary Fund to begin what Mr. Dallara termed "a real dialogue" with private investors and lenders on world market developments. He said that might not only help avert crises but also ''lay the basis for cooperation in periods of crisis."

He said he is "modestly encouraged" that IMF officials might agree to a regular exchange of views with market "participants."

In managing crises that erupt, the institute argued for letting market forces work and limiting the size of IMF or other official emergency aid.

The IMF's pledge early this year to provide up to $18 billion in emergency finance to Mexico may have been excessive, Mr. Dallara said. A major aid package, he said, should come only after a nation has fully laid out its economic plans.

Providing big doses of emergency aid, he said, could undermine the IMF's credibility and raise questions of "moral hazard," whereby governments or private investors become insulated from the market effects of their actions.

The market place, Mr. Dallara said, can now more easily absorb financial shocks than during the 1980s, because investment into developing countries is much more diversified. He said institutional investors generally commit "only marginal portions" of their total portfolios in developing countries.

This year, the institute estimated, private capital flow to the major developing countries will total about $128 billion, down nearly $40 billion

from 1994. Almost all of the decline, it said, will be to Latin America, reflecting in large part the impact of the Mexican crisis.

Falling most sharply will be equity investment and financing by nonbank private creditors. Bank financing, the institute said, may be higher than in 1994, while new bond issues may be close to last year's total.