However, the fact that I have deemphasized government policy as the source of the adjustment process does not mean that the public sector has no role to play. Reducing our budget deficit can ease the adjustment process by releasing resources that can be channeled into higher net exports, so that a reduced trade deficit does not require a curtailment of investment.
The public sector in several nations has an important role in creating flexible markets for products, labor and financial assets. Appropriate macroeconomic and structural policies in many economies can contribute to the privatesector adjustment process by fostering an environment of innovation, increased productivity and morerapid growth of domestic demand.