The construction of ERM II, with a broad band for exchange rate fluctuations, would then make it possible for the interest rate to deviate somewhat from the level in the euro area. The problems that may arise in such a situation depend on how economic policy in general works. Provided Sweden is more or less in phase with the cyclical pattern in the euro area, there need not be any serious conflicts. The monetary policy objectives are broadly the same. There are therefore grounds for supposing that monetary policy can be much the same as at present. The starting point here is a credible central rate that market players expect will be the rate at which the 3  BIS Review 96/1999  krona is ultimately converted into euro – two assumptions that are both very reasonable. A case in point is what happened in Finland. Monetary policy there continued to target inflation even after the markka had been included in ERM II; following its entry, the markka stabilised and was close to its central rate. This brings me to the recent discussion in Swedish media. Briefly, it has been argued that Sweden is in the process of moving out of phase with activity in the euro area, mainly because fiscal policy is unduly expansionary. At present we can handle such a situation because Sweden is in a position to implement an independent monetary policy focused on price stability; the Riksbank can quite simply raise interest rates and thereby counter any tendencies to overheating.
It is often sufficient with loans with a three to five year term to restore balance in the foreign payments. In the case of developing countries, however, it has increasingly been seen that short-term instability often depends on deep-seated structural problems. Examples of this type of problem are inability to collect taxes, inefficient bankruptcy legislation, widespread corruption and weaknesses in the banking sector. These types of issues are in the borderland between the mandate of the IMF and the World Bank and the two organisations collaborate in initiatives in this area. Among other things, the IMF and the World Bank have certain types of loans which, in combination with economic reform programmes, are focused on building long-term, strong structures in poor countries. Another type of structural problem is the unsustainable foreign debts burden that some of the most poor developing countries have to contend with. For a couple of years, the IMF and the World Bank have been working together in debt relief projects for these countries. In practice, this implies writing off parts of the debts. The debt relief goes hand-in-hand with economic reforms in the countries, aimed at decreasing poverty. In the longer term it is only through a responsible economic policy, focused on growth, stability and sound government finances, that these countries can avoid debts building up again.