Vicious circle Squaring this circle has kept the two sides in slow-moving talks for much of the past two years. In June this year, Horst K hler, the new managing director of the IMF said that he is committed to finding ways to develop closer cooperation between the IMF and the private financial community. While lending to emerging economies was nowhere near the level seen prior to the Asian crisis, it has since picked up. Chance for change Some options for the better handling of financial crises are emerging. Progress has been made towards a framework which could help guide decisions in times of crises, the IMF said.
Details are, however, thin on the ground.
Some alternatives to bail outs have been put forward. One alternative to large-scale financial rescues is a standstill on payments. This allows time for investor panic to calm down, hopefully reducing the chance of capital flight. A massive withdrawal of capital typically creates a liquidity squeeze in the debtor country, often worsening the crisis. Another alternative mooted is collective action clauses in bond 'contracts'.