There remains an urgent need for the international financial community to raise its game in both preventing and resolving such crises. On prevention, much has been achieved, built around the overriding principle of transparency. In itself, transparency will not prevent financial crises. But it can help reduce the frequency of crises - by alerting both markets and policy makers to problems on the horizon - and their severity - by minimising the surprises about the scale of any liquidity problems. On the resolution of crises, the past year has seen a significant change in practice with more weight given to the involvement of private sector creditors. The key to progress is the recognition that official finance from the IMF is strictly limited. Large bailouts from the IMF are undesirable - partly because they reduce the incentive for private sector investors to appraise carefully the risks they take, and partly because the funds available to the IMF are wholly inadequate for it to play the role of an international lender of last resort. Once it is recognised that official finance is limited, then it is clear that countries need to work closely with their own private sector creditors. Debt obligations must be honoured, although in some circumstances it may be necessary to restructure those obligations. The relationship between debtor countries and their private sector creditors is one that must be nurtured at all stages.
Mervyn King: No country is an island Speech by Mervyn King, Deputy Governor of the Bank of England, at the Institute of Petroleum Annual Dinner, London, 21 February 2001. *  *  *  No country is an island - in terms of economics, if not geography. Trade and capital flows link all the economies of the world. Since 1970 the volume of world trade has increased more than five-fold. Globalisation is not a slogan; it is a fact. The economic winds can rapidly alter direction bringing significant changes in the economic weather. What happens in the world economy is of great importance to your industry. But no business in a country, such as the United Kingdom, which exports and imports almost a third of its national output each year, can ignore global economic developments. Recent events have reminded us of just how volatile that economic weather can be. Only a few short months ago, the United States was experiencing rapid economic growth at a rate which surprised us all. The new frontier had become the new economy, and some had forgotten that economic downturns are a regular feature of a market economy. Share prices had reached levels four times that of a decade earlier, and the price earnings ratio of America's top 500 companies was over forty, an unprecedented level. Now, after a swift and sharp fall of business and consumer confidence, the business cycle appears to be alive and well, and living in the United States.