do differently, before saying something about international arrangements more generally. banks in the major creditor countries have participated fully in the enthusiasm for investment in rapidly growing emerging markets. this already happened in the 1970s in latin america, and led to the debt crisis that began in mexico in 1982. as a result of that experience, banks were for a while much more circumspect. but by the 1990s they were already lending substantial amounts in asia, buoyed by the perception that the asian economies had better macro - economic fundamentals, including low inflation rates, modest public debt and very high rates of domestic saving and investment. this led lenders to overlook points of vulnerability. as we now know, a significant part of foreign lending went to over - leveraged companies and to financial institutions with weak balance sheets. with hindsight, we can say that the lending banks made the crisis worse by first lending too much, and then withdrawing loans too precipitately. both these problems must be tackled. in the first place, banks must be given the means and the incentive to make better lending decisions. relevant information about the condition of borrowing institutions and countries must be made more transparently available ; and banks must be encouraged to act on it by knowing that they will not be bailed out from bad lending decisions. secondly, if a crisis does develop, ways must be found to reduce the tendency of private lenders to withdraw funds at the first hint of trouble. [UNK] before concluding, i want to say something about international responses to the problem of strengthening financial stability. when a crisis develops, it is entirely appropriate that we use the mechanisms of international co - operation to help moderate and resolve the crisis. in practice, this involves a central role for the imf, as well as for groupings of countries with a close interest in the speedy restoration of stability. but are there ways in which the international community could make its influence more effective? in other words, are there initiatives that can be taken at the international level that would help prevent crises, and resolve those that nevertheless occur in a more effective manner? as i noted earlier, confident answers to these questions can only be given when we have a greater perspective on the reasons why the recent crisis occurred and spread. but certain tentative conclusions are already possible. in the first place, the international community can do a better job of establishing standards by which the various actors in international capital markets agree to be bound. these need to include standards of transparency with regard to relevant

( at least in most countries ). one by one, central banks that had adopted monetary targets friedman, milton : " what price guideposts? ", in george p. schultz and r. z. aliber ( eds. ) : " guidelines, informal controls, and the market place : policy choices in a full employment economy ", chicago and london. in the 1970s, dropped or downgraded them in the 1980s and 1990s. nowadays only germany and switzerland place strong reliance on monetary aggregate targeting, and even they apply such policies with a significant measure of judgment. exchange rate targeting has a long history. the gold standard involved stabilising the domestic price level in terms of gold, and the bretton woods system linked national currencies to the dollar. more recently, exchange rate anchors have been used effectively by a wide range of countries. their value in restoring discipline and credibility is hard to doubt. but they have two major disadvantages that have become evident in recent years. firstly, when capital markets are integrated, any country adopting a strict exchange rate peg subordinates its monetary policy to that of the anchor country. this works well when monetary policy requirements are in harmony ; less well when there are divergences, as the united kingdom discovered in 1992. secondly, if a country adopting a currency peg fails to master domestic inflationary pressures, it may find that its balance of trade deteriorates and eventually reaches a point of unsustainability. the decision to adjust or abandon an unrealistic peg has proved to be one of the most difficult of economic policy decisions – in part because so much has typically gone into seeking to achieve credibility through adherence to the peg. in response to the perceived shortcomings of monetary and exchange rate targets, and of unconstrained discretion, attention has been given in recent years to inflation targeting and central bank autonomy as a means of strengthening the likelihood that price stability objectives will be met. at first sight it might seem tautological to use an inflation target to achieve an inflation objective. in fact, there is rather more to it, as the practice in the united kingdom shows. the idea is that a public commitment to an inflation target, coupled with the maximum of transparency in describing the authorities ’ forecasts and decision - making process, enables a discretionary approach to be applied with less risk that monetary policy decisions will be biased toward leniency. if, in addition, the central bank is made fully independent to pursue a clearly - defined goal