The mood is to continue cautiously down that path, but to emphasise the need, not only for sound macro-economic policies, which everyone accepts as a sine qua non, but also for steps to accompany capital account liberalisation designed to reduce the risks of volatility. These relate in part to the process of capital account liberalisation, where there is now a good deal more stress on ‘sequencing’ - that is on liberalising potentially more stable, longer-term, capital inflows initially, rather than short-term borrowing denominated in foreign currency. BIS Review 49/1998  -4-  But they relate particularly to three key conditions for living with free capital movements. The first is “transparency”. In a broad sense a need for greater transparency is recognised in relation to public policy, to the relationship between the public and private sectors, to corporate governance, accounting standards, and so on. In a narrower sense there is seen to be a need for more reliable, and greater and more timely disclosure of, financial information generally, at the level of individual borrowing entities, but especially also in relation to countries’ true foreign exchange short-term asset and liability positions. This is especially important in relation to the foreign currency liquidity position of the monetary authorities and of the banking system.
But however much we try to prevent accidents we need nevertheless to be prepared for them to happen. The third condition for living with freedom of capital movements, therefore, is a more consistent view of how, when a crisis does break, the burden might be expected to be shared in future between official and private sector financing. In this context, one thing seems clear: given the evidence of public resistance, we cannot assume that massive official financing packages will in fact be deliverable in the future to bail out private foreign currency creditors. Various ideas have been put forward for involving private foreign currency lenders in an extension of maturities in case of a serious foreign exchange crisis perhaps within a framework of insolvency principles or some other form of code of practice. These ideas, too, need to be developed and refined; and we need to establish suitable incentives and conditions to ensure that the financing burden is in fact shared between official and private sector creditors. The general point here is that it may help to discourage excessive, potentially volatile, short-term foreign currency lending in future if the lenders clearly understand from the outset that they will indeed be expected to carry a substantial part of the load. Mr Chairman, the debate on all these issues is still at a relatively early stage, and is being carried forward seemingly whenever two or more monetary officials, or indeed private sector analysts or commentators, are gathered together in one place.