The international financial system Beyond these domestic factors, the crisis has also uncovered weaknesses in the international financial system, and raised questions about the roles of the IMF and World Bank. Several international groups are examining these issues. They have made useful proposals and recommendations to improve aspects of the global financial architecture, although some issues still remain contentious, such as how to regulate hedge funds. The task now is to implement without delay those reforms on which broad consensus has been reached. The reforms will not prevent all future crises or mishaps. However, they should make financial systems, especially in emerging markets, more robust and less vulnerable to contagion effects when the next crisis strikes. 3  BIS Review 111/2000  Rebuilding confidence and prosperity Given these conclusions, what should ASEAN do to rebuild investor confidence and achieve prosperity? Accepting globalisation First, countries have to accept that globalisation is a reality. They should take advantage of globalisation, and not fight against it. It is a powerful trend that can bring benefits to their people. Before the crisis, ASEAN had prospered by riding the wave of globalisation. Their take off had been fuelled by strong investments by MNCs, buoyant exports and freer trade and economic policies. Within ASEAN, the most open economies were also the fastest growing, whereas isolation led to stagnation. Against this backdrop, the crisis came as a profound shock, which could easily have caused a backlash against globalisation.

Unless mergers are accompanied by other measures to improve corporate governance, we will merely create one large weak bank out of several small weak ones. Financial sector reforms also have to include strengthening of the supervisory system and institutions. Had supervision been adequate in the first place, the problems would not have become so grave. Professional and independent supervisory authorities will tighten standards of acceptable banking practices, and over time instil rigour and rectitude among all participants in the system. The supervisors have to set standards, penalise errant lenders, and remove implicit guarantees. Credit discipline will foster the emergence of stronger companies, and provide the basis for sustained growth. Political and social preconditions All these policies - accepting globalisation, fostering ASEAN economic cooperation, restructuring the corporate sector, and reforming the banking sector - are essential for countries to recover. But to be in a position to implement and make such economic policies work, countries must first create the right political and social preconditions. Investors, both domestic and foreign, will adopt a wait-and-see attitude until they know how political uncertainties are resolved. Their views are coloured by past experiences, and they will look for evidence of a clear break with the past. A stable political climate is essential to foster confidence, investment and growth. Governments must put their houses in order, bring corruption under control, and install men and women of integrity and competence to key positions within the top leadership.