The economics profession in general, and the IMF in particular, needs to do a better job of keeping up with developments in international capital markets. The new International Capital Markets Department should enable the IMF to deepen its understanding of, and judgment on, capital market issues. And the informal but regular dialogue with high-level representatives of private financial institutions, through the Capital Markets Consultative Group, will further strengthen our work on crisis prevention and resolution. It is time to start a work process to review in a systematic way the experiences with bubbles and disruptive volatility and on this basis to contribute to forward-looking financial markets policy. My advice is to conduct this work in consultation with the private sector.
Good policies are still the best precaution that members can take against crises.
We must therefore seek ways to encourage countries to be ambitious in the adoption of good policies in non-crisis situations. This should be understood as a reward for countries with a strong track record of sound policies and institutional arrangements. The further liberalization of capital flows remains an important goal. However, progress in this regard has to draw on the experience gained in the past. That means, in my view, that capital account liberalization must be carefully sequenced, in terms of timing and degree, with the development of a sound domestic financial sector, including of adequate regulatory and monitoring frameworks.