In its country evaluations, the IMF will also be paying more attention to the development of the financial system. There is to be cooperation with the World Bank; these two organisations have agreed on a joint model for the appraisal of national financial sectors. These appraisals are to be based on the current minimum standards for banks and other financial institutions, a broad review of developments and risks in the country’s financial sector, and other conditions such as legislation, accountancy rules, payment systems and financial markets, for example. 3. Greater transparency A more stable development also calls for greater transparency. If the global capital markets are to function as intended, their players must know about the actual risks and be in a position to make realistic profit assessments. This in turn means that international organisations as well as  BIS Review 52/1999  6  governments, private companies and financial institutions must convey a fair picture of the prevailing conditions. As regards the IMF, increased transparency has been proposed in the country assessments, for example. A pilot project has been initiated for the voluntary publication of material about individual countries. Sweden has promised to participate in the project. Transparency also applies to the individual countries and the private sector. One element in the recent crisis has been a misleading account of both private debt and the size of foreign exchange reserves in a number of countries.
Every saver and borrower exerts some influence on the market but naturally not to the same degree. The stage is set by the biggest players, be they individuals, companies or nations. The scope for economic policy Free capital mobility is sometimes criticised for encroaching on democracy and rendering economic policy less effective. Even in a world with integrated financial markets, economic policy is decided by the national political systems. They are free in principle to alter tax rates, boost public spending and adjust interest rates whenever they wish. In this direct sense, a more open economy does not mean that policy is restricted. In many ways, access to international capital can actually enlarge the scope for action. Unlike the case in earlier centuries, a country that is stricken today by severe crop failures, for instance, can borrow external funds to buy seed. Similarly, a country wishing to strengthen its growth potential by more than domestic saving permits can expand its production apparatus more rapidly with the aid of imported capital. At the same time, loans and other financial transactions do entail dependence. If a country’s economic policy does not inspire confidence, the consequences may be unfavourable. Perhaps investors will no longer be prepared to provide new loans and may even stop existing credits. Long bond rates are liable to rise, accompanied by a depreciating currency. Such reactions are the market’s way of passing judgement on economic policy and a country’s creditworthiness. This mechanism is the same as that for private borrowers.