As a result many avoidable crises soon may become inevitable. And the problem of contagion, whereby difficulties in one case spread to many, would seem likely to worsen. •  Moreover, a perceived weakening of the international community’s commitment to voluntary, market-oriented approaches and its support for honoring contractual commitments would likely create deep distrust, making it harder to encourage cooperation between debtors and creditors in ultimately resolving the crisis. •  An overly quick recourse to payment suspensions also risks discouraging precisely the types of flows that we should wish to encourage, that is, longer maturities with better risk sharing characteristics, such as long-term bonds and equities. In a crisis, the hottest money leaves first—by definition. It seems counterproductive to seek to penalize those who stay. •  Finally, I would suggest that preemptive attempts to "freeze markets" also undermine market discipline of and ownership by the local authorities. 6  –  Increases and decreases in financial flows, and the fluctuations in pricing that naturally accompany positive or negative trends in policies and economic and financial performance are a reflection of, and act as a natural brake on the development of imbalances. –  But an assertion of control by international community, by preemptively calling a time out, risks diverting attention from the policies of the local authorities. As a result, denial and delay, aggravating factors in almost every crisis, may well continue and be exacerbated.

The resultant oversupply of space contributed to one of the most severe downturns that the commercial property industry has ever seen. Since then, other asset classes have outperformed commercial property in most years. Many institutional investors have responded by continuing to reduce their property holdings. Property companies have suffered; we have seen some high profile failures and reschedulings. The banks have suffered very sizeable losses on commercial property. Construction companies and associated professions such as architects and designers have suffered from the reduced workload on commercial property. And we must not forget the  BIS Review 11/1997  -2-  valuing and surveying professions; the upturn in insolvency-related work was not sufficient to offset lower turnover and the corresponding heavy pressure on fees. 6 Possibly the only ones to benefit from the downturn were tenants fortunate enough to sign new leases in an environment of falling rents. The modest extent of subsequent development has probably meant that even these ‘beneficiaries’ have had a more limited choice of accommodation. 7 Other factors have also made the market very challenging, especially for investors and lenders. These have included the speed of building obsolescence and growing pressure on companies to manage property resources more effectively. Several initiatives aimed at enhancing the market’s efficiency and attractiveness made little headway in the first half of the 1990s. These included efforts to enhance liquidity, to develop property derivatives, and to improve information on the very sizeable part of the market that is not ‘prime’.