When it comes to undertaking reform in the areas of financial system development, the exchange rate and monetary policy regime, and liberalization of the capital account, there is more consensus on the importance of the efforts than there is on the appropriate pace and sequencing of policy changes. These initiatives are all closely related, and designing sensible reforms in one of these areas requires careful consideration of how to proceed with the others. Progress in one requires progress in the others. And market participants and policymakers need to have the chance to adapt to change and learn as reforms are implemented. This is the classic and persuasive argument for care and for gradualism. But it is possible to move too gradually. There is risk in inertia as well as in change. The policy challenges in occupying the middle ground - the middle ground of trying to allow some but not too much variability in the exchange rate, some but not too much freedom for capital movements with the inevitable increase in leakages around the remaining controls, and some but not too much competition in a still fragile domestic financial system - may be harder during a protracted transition. The more protracted the process of agreeing on and initiating change, the greater the costs for the economy as a whole of the distortions left in place. By outlining a path for reform, governments can dispel uncertainty about the overall strategy and enable market participants to begin to adjust, mitigating some of the concern about moving too quickly.

Bank of France reports industrial output continued to increase in all sectors in February 1997 BANK OF FRANCE, MONTHLY BUSINESS SURVEY, 17/3/97. In February, according to the business leaders surveyed by the Banque de France, industrial output continued to increase in all sectors. The capacity utilization rate rose slightly. Overall demand grew at a moderate pace. There was strong demand from foreign markets, particularly from northern Europe, including Germany and the United Kingdom, and from the United States and Asia. The rise in the dollar and in sterling reinforced the competitiveness of French products. Growth in demand on the domestic market was much more moderate. Order books are deemed to be satisfactory in all sectors, with the exception of the food-processing industry, where they declined slightly and appear to be insufficient. Inventories of finished products are still somewhat above normal levels. In particular, they are considered to be above desired levels in the food-processing, intermediate goods and automobile sectors. In the coming months activity should continue to increase in all sectors, with the exception of the automobile sector. Commodity prices were stable overall. However, price rises were recorded in certain parts of the intermediate goods industry, such as the rubber and plastics, metal-working, and wood-processing sectors, and in the food processing industry owing to the appreciation of the dollar. Intense competition prevented these increases from being passed on to sales prices, which scarcely changed, except in the automobile sector, where they declined. The business leaders surveyed continued to be cautious in their investment plans.