Changes in the international financial system and in the way individual economies with open capital accounts operate have significantly affected the nature of balance of payments problems, and therefore the policy response required to restore external viability. Current account imbalances used to be the most important form of external disequilibria, in former times when most economies were relatively closed to capital flows, and when the state played a more important economic role. Restrictive macroeconomic policies, accompanied by exchange rate adjustment were the main solution. Many countries have liberalized their economies and international capital flows. Private investors exert a much greater influence on countries' economic performance.
Capital flows now exceed by far current account flows.
Capital account disequilibria are now a more frequent source of balance of payments problems. Restoring external equilibrium is thus likely to require a different set of policies. Restoring investor confidence becomes one of the most important objectives in a situation of sudden large capital outflow. This is clearly shown by recent episodes of financial crisis. However, restoring investor confidence often requires a whole range of measures, not all of them within the traditional purview of the Fund.