Lots of things, but one thing for sure is a true international lender-of-last-resort (ILLR). When domestic financial markets are gripped by panic, domestic central banks play a critical role in restoring stability because they stand ready to extend liquidity to banks. Just think how much worse the current crisis would have been in the U.S. if the Fed had not been there to enlarge its balance sheet by leaps and bounds.
In the international sphere, there is no equivalent. So when countries suffer what Guillermo Calvo has called a "sudden stop" in capital flows, often through no fault of their own, they have to take it on the chin and bear it. There is the IMF of course, but it has traditionally operated in a way that is very different from a lender-of-last-resort. The amount it lends is limited, it takes a while to get the money, and the money comes with lots of strings attached.
As Calvo points out, the recent G-20 summit has resulted in some decisions that may well change all that. The IMF is getting a lot of new resources at its disposal (a tripling of its lending capacity, plus the possibility, for the first time, of going to markets to borrow). It is also revising its lending policies in order to respond more quickly and (at least for certain countries) with less or no conditionality.
This is all for good, and it promises to plug a significant hole in the international financial architecture. But as Calvo also points out, it still remains to be seen how the IMF will operate and whether the new resources at its disposal will be adequate in light of the scale of the financing needs emerging and developing countries face. (Turkey, which has long been negotiating with the IMF for a loan, may well be the first important test case for the new IMF.)
While I think these changes are all in the right direction, I worry that they will fall far short of converting the IMF into a true lender of last resort. I just cannot imagine that the Americans and the Europeans will allow the Fund to lend at will--even for countries that are taken to be "behaving well." And I also worry about so called ex-ante conditionality--the stamp of approval that countries will need to qualify for these fast-disbursing lines of credit. The IMF has a patchy record with respect to being able to evaluate risks ex ante. It also has too rigid views on what counts as "sound policies."
So I remain convinced that we still need a Plan B for global finance--one that places less confidence on us getting the international institutions to work right and one that allows greater room for countries to protect themselves from financial whiplash through managed capital flows.