The engagement of private investors is thus essential for the resolution of payment imbalances in crises… the official sector needs to avoid creating expectations that private creditors and investors will be protected from losses or that official resources would be used to finance large, sustained capital outflows. … We underscore the need for further progress". The opponents of this approach raise two important questions. First, is it possible to define limits on IMF lending? Second, is it acceptable for the official sector to countenance default by a sovereign borrower when the consequences for both the country and the international financial system could be devastating? I shall try to provide answers to both of these questions. It is true that recent crises have been the result of developments in the capital account rather than the current account. As capital flows have grown, so too have the potential demands on the official community as they attempt to fill capital account financing gaps. That is why so many more programmes have involved "exceptional" access in relation to quota. So perhaps, in a world of capital account crises, exceptional access should become the norm? This argument is superficially quite attractive. But its implications need to be assessed carefully. It would mean that IMF resources would need to increase in line with private capital flows even for the IMF to maintain its current role. And since 1970, capital flows have grown around four times as fast as world incomes.
Under British Chairmanship, efforts have been made to increase the effectiveness of the meetings of the IMFC which represents all countries around one table. Private finance and public funds The second main area in which further progress is required is the resolution of crises. The problem would be easier to solve were it possible to distinguish between two rather different sources of crises – a liquidity-based problem caused by a currency or maturity mismatch in a country's national balance sheet despite a sustainable macroeconomic and debt position; and a fundamentals-based problem which means that the debt burden is unsustainable or the exchange rate or other key macroeconomic policies need to be altered. In the former case, the provision of liquidity support by the international community might help to bridge to a position in which the country could re-engage with its private creditors. In the latter case, the main requirement is not liquidity support but a change in macroeconomic or debt management policies. Recent crises have seen examples of both types of problem. Liquidity runs typically occur because of a co-ordination failure among creditors. There are two solutions to this co-ordination problem. The first is a lender of last resort that is able to provide liquidity support quickly and on a large – indeed, potentially unlimited – scale for a short period to enable the affected country to meet its obligations.