However, while initially strong fiscal positions may have provided a sort of “spare tire”, as with any spare tire, it is risky to ride on it for too long, in part because it may be needed to deal with the next nail in the road. Public debt has already risen markedly in a number of countries, and contingent liabilities often remain significant, raising some concern about potential future debt growth. Thus, some governments now face the challenge of moving to retighten fiscal policy while preserving growth and stability and, over the longer term, gradually restoring their previously strong net debt positions. These considerations further underscore the importance of quickly completing the process of banking sector rehabilitation and of attracting new sources of capital. Such decisive action would allow the banking sector to again be an engine of growth, capable of offsetting the eventual withdrawal of fiscal stimulus. Improved transparency can help Achievement of the goals of corporate and financial restructuring, and of macroeconomic stability, are fostered by improved transparency. When authorities clearly explain the objectives or concerns that lie behind their policies, they greatly increase the likelihood that markets will move in a direction that supports, and even favorably anticipates, the authorities’ goals. Under the auspices of the IMF useful standards have been promulgated for transparency with regard to macroeconomic data, including international reserves, and for fiscal and financial policies.

•  Fundamental improvements in bank corporate governance are critical. Just as risk management and internal control processes usually need to be thoroughly overhauled in weak institutions, more often than not, so too does management. •  Protracted forbearance to preserve the appearance of solvency is not a solution. While some degree of forbearance may be unavoidable and even appropriate under the right conditions, it is at best a temporary measure. It is critical that forbearance does not become institutionalized, but is tied directly to actions by both bankers and supervisors to address underlying problems. •  Governments are not good long-term asset managers. Prolonged government holding of impaired assets is not likely to enhance their value nor aid in the restoration of market liquidity. •  Governments are not good commercial bankers. Delayed privatization of nationalized banks always means higher future costs and usually inhibits fundamental reform. •  Government-directed lending means future fiscal losses. Similarly, efforts to stimulate credit growth by non-market forces in the context of a banking crisis at best buy additional time and usually dig a deeper hole. •  Foreign investment in domestic financial sectors can yield important benefits. Foreign direct investment in the banking sector can provide much-needed capital resources, technology and knowledge transfer, and a more diversified capital and funding base in the event of future economic instability. •  Financial sectors are only as healthy as their borrowers. Without corresponding corporate sector restructuring, financial sector rescue efforts are likely to be necessary in the future.