It accommodated, if not supported, decisions by its members to calibrate policies designed for a more benign external environment than was realistic and therefore encouraged less self-insurance than was necessary to manage safely. And it was drawn too far into a range of efficiency-improving long-term institutional reforms that necessarily diffused attention from critical vulnerabilities. BIS Review 37/2004  3  To some extent, these criticisms suffer the classic failure of claiming that what seems obvious in hindsight was as clear at the time. Many are unfair in the degree of influence they expect the Fund to be able to exert over a reluctant member - recall the constraints I described at the beginning on the Fund’s powers over its members. And many of the criticisms fail to recognize the difficulty of making definitive judgements about the path of policies consistent with sustainability. Yet elements of this general diagnosis of the Fund’s policy advice to emerging market economies have substantial merit. If the Fund is going to contribute to a process of well-targeted reform, particularly in the more vulnerable countries, it probably needs to raise the bar, to increase the level of ambition of its policy recommendations. Greater policy focus is required on the principal sources of near-term vulnerability, ideally without fully eclipsing longer-term institution building and structural reforms important to raising growth potential. A risk-based framework for determining the hierarchy of policy priorities is important.
•  International reserves have increased substantially, providing a larger cushion against adversity. Among the largest borrowers, half now hold reserves greater than 150 percent of maturing short- and long-term debt; less than one-sixth had such coverage heading into 1997. •  There have been improvements in fiscal performance, with some notable cases of governments achieving and sustaining large primary surpluses. BIS Review 37/2004  1  •  External balances have improved, with current accounts in most of the emerging world in surplus or modest deficit. Only 2 of the 20 largest borrowers now are running deficits in excess of 3 percent. •  Exchange rate regimes are more resilient and less fragile, as a substantial majority of the largest borrowing countries have moved to flexible regimes, and away from the fixed-butadjustable pegs that proved so dangerous in the crises of the last decade. •  Important progress has been made in building credibility for new monetary policy regimes, and inflation is generally moderate. •  Governments have made major investments in recapitalizing and restructuring their troubled financial systems. For example, in Asia, where some of the most severe problems were encountered, governments have spent over $ billion carving out problem loans and bolstering capital. •  Growth rates have improved with the restoration of domestic stability and recovery in external demand. Indeed, aggregate growth currently is running at its highest rate since the onset of the crisis in 1997.