Moreover, both of these are most effective when supported by a dynamic and adaptive policy regime. •  The simple reality is that countries with robust financial systems, strong fiscal accounts, low inflation, credible and coherent monetary and exchange rate policies, moderate external and internal indebtedness, reasonable current accounts, and adequate domestic savings rates are less likely to be buffeted by financial and economic turbulence. Moreover, when shocks do occur, such countries tend to be far more resilient. •  There is also considerable agreement on many of the elements needed to achieve these goals. This agreement has been reflected, in part, in the development and promulgation of globally accepted standards and codes for best practices in areas ranging from transparency in fiscal, monetary, and financial policies, to public debt management, and core principles for bank supervision. Guiding themes across these various standards have included the importance of consistent disclosure practices and of building stability up from the firm and sector level. The latter is accomplished by encouraging sound risk management and stronger balance sheets, and creating efficient systems of market, legal, and regulatory discipline. •  But the learning process continues. For example, in this country, recent experiences have brought to light the need to do more to strengthen corporate accounting and disclosure standards, particularly with regard to guarantees and complex financial arrangements, such as those funded offshore or through special-purpose entities. •  Our ongoing efforts to revise the Basel Capital Accord also reflect a learning process.

Also, in today’s environment, the fear of an event often is the event itself, because of the inherent tendency of markets to anticipate developments and overreact. BIS Review 61/2002  3  G  But on the positive side, financial recoveries can proceed more rapidly in today’s environment, particularly with the right policy responses from borrowers. In part, this reflects the fact that today’s market participants generally have the capacity - and many have little choice, under mark-to-market accounting - - to digest losses and move on. The broader sourcing of capital today also gives more scope to the possibility that, while some investors may withdraw, others may take their place. The caveat here is that the well not be poisoned through unnecessarily broad or heavy-handed approaches, a point I will return to later. •  What is the right way to deal with this changed and changing environment? In my view, the solution is neither a single piece of financial engineering nor a compact between the official lenders and private creditors. Rather, it is a process incorporating a number of elements. Essentially, I would suggest that our current case-by-case approach to crisis management needs to evolve in ways that are market-based and adaptive, yet strategic, creative, and principled. •  Being successful in today’s environment requires adapting to the particularities of the case at hand, as well as the global financial and economic context, and requires seeking, as far as possible, to work with the grain of a given situation.