When the government's fiscal position is truly unsustainable, international financial assistance aimed at providing temporary liquidity will not suffice, and some form of debt restructuring becomes unavoidable. Thus, a sound fiscal position is as important as a healthy financial sector in preventing emerging-market financial crises. We must be realistic about the feasible pace of improvement in economic policymaking in many countries.
Economic institutions and practices take a long time to develop--they cannot be put in place or changed radically overnight. Furthermore, as I argued previously, efforts to introduce policies that open an economy to international markets before the appropriate legal and institutional infrastructure is in place--for example, taking all controls off short-term capital movements when the banking system is underdeveloped and inadequately regulated--can be counterproductive.