In Latin America, healthy corporations which before the Russian crisis had regular access to financing paying reasonable spreads saw their relations with the markets suddenly halted. These companies did not change, the country environment in which they operate did not change, but they were penalized by action beyond their control. Of course it is up for the private sector to make its own decisions and the right risk assessments when it embarks into international financing. The obligation to fight contagion is not different from the obligation to maintain a safe and well regulated economic reality at home. The need to work more decisively on contagion is even more important when we recognize that open economies, with a tradition of relations with the market do not want to resort to unilateral solutions such as moratoria or suspension of payments, capital or exchange controls.
Unilateral solutions lead to long term confidence breaches and credit interruption.
Such work may involve a discussion about pros and cons of the existance of an international lender of last resort or a mechanism able to absorb excessive expansion of liquidity or to provide credit in order to reverse contraction in international markets. Adequate safeguards and temporary controls of short term inflows cannot be disregarded. The process of capital liberalization must take in due account the different stage of development in the various economies and the robustness of the financial intermediation systems. Much has been discussed recently about the need to improve the dialogue between the IMF and the private sector. The focus of the discussion however has been limited to the levels of transparency to be exercised by the Fund.