The major task of a development-friendly international financial architecture is to mitigate procyclical effects of financial markets and open "policy space" for counter-cyclical macroeconomic policies in the developing world. This paper explores a series of policy instruments for this purpose: counter-cyclical prudential regulatory and supervisory frameworks; market mechanisms that better distribute the risk faced by developing countries through the business cycle; multilateral instruments that encourage more stable private flows; and better provision of counter-cyclical official liquidity. It also suggests that regional macroeconomic consultation, and common reserve funds or swap arrangements among developing countries can play a role in this regard.
Capital account volatility in the developing world -- Implications of financial volatility for international cooperation -- Counter-cyclical prudential regulation and supervision -- Market instruments -- Counter-cyclical guarantee facilities -- The provision of counter-cyclical official liquidity -- Macroeconomic cooperation among developing countries -- Conclusions.

19 p. : graphs

Includes bibliographical references (p. 17-19).