We have given some thoughts to this issue, and to execute the idea, one solution would be for the Fund to set up a new department that will handle only crisis cases involving exceptional financings. This new department will take over the responsibilities of crisis management and resolution from the area departments and will have the responsibility for designing the rescue package and acting as coordinator between creditor Governments contributing to the rescue package, other creditors in the private sector, IMF management, and the country concerned, to push through the rescue program. In this model, a separate Resolution Board will also be set up to approve, monitor, and supervise the implementation of the rescue package, of which membership will come directly from representatives of Governments contributing to the rescue package, key IMF members, and IMF management. The IMF Executive Board will vote to provide IMF’s contributions to the package but would have no other involvement. This is to separate the decisions on surveillance and lending. BIS Review 24/2006  3  This simple model of separation illustrates three benefits that can add to the current process. First, there will be clearer accountability within the Fund in terms of duties, responsibilities, and decisionmaking for its works on surveillance and crisis resolution. Second, there are benefits of resource pooling which will allow the Fund to handle crisis cases with all available resources and with the program design structured under a common set of guiding principles.

In fact, a definitive framework for analyzing capital account sustainability would be most helpful for emerging market members in their own assessments of their vulnerabilities to capital flow reversals. I think this capital account sustainability framework is important, given the Fund’s mandate on the balance of payments and the recent episode of capital account crises in emerging markets. The second point I want to raise is that the Fund should look more positively at the progressing efforts by members to increase their own immunity against the risks of financial crisis and contagion by engaging in various self-insurance activities. These activities include (1) strengthening domestic policies, institutions, and data transparency which have led to greater flexibilities in dealing with shocks, (2) improving external positions by running current account surpluses, reducing external debt, and holding larger international reserves, (3) being more careful with capital account liberalization with greater willingness to use prudential and capital account measures to check excesses and to deter speculative short-term capital flows; and (4) engaging in regional cooperative efforts, such as the Chiang Mai Initiative in East Asia, to undertake collective regional surveillance and set up liquidity facilities that can be drawn in the case of emergency. To me, these developments reflect the genuine desire by regional policymakers to work together towards a common goal of reducing the likelihood of the next crisis. The Fund can look more positively at these developments as they contribute to raising global capabilities in preventing and dealing with financial crises.