they were not necessarily articulated fully at the time, these solutions entailed several goals : preserving a functioning domestic payment system, ring - fencing the sovereign in the case of bank failures, limiting the socialisation of private sector losses, and creating the conditions for rebuilding a domestic banking system. in essence, the adopted solution saved the domestic operations of the banking system by splitting up the banks and allowing the international part to go into a resolution process. furthermore, in order to stop an incipient run on domestic deposits, all deposits in iceland were declared safe and all deposits in icelandic - headquartered banks were given priority over other unsecured claims. as a result of these measures, the domestic payment system functioned more or less seamlessly throughout, and common citizens had continuous access to their deposits. bis central bankers ’ speeches there are still a number of misconceptions about this process in international discussions. there have been claims that iceland allowed its banking system to collapse, with what now seem reasonable results, and that others should consider doing the same. the fact is that iceland kept the domestic part of its banking system running throughout ; otherwise, the consequences would have been dire. some have claimed that the banks were nationalised. they were not. the old banks are private companies. they are in winding - up proceedings governed by law ; they are not under the control of the government. the government has a majority stake in only one of the new banks. others have claimed that iceland defaulted and got away with it. the opposite is true. the credit of the sovereign was preserved, and all debt obligations have been paid on time. moreover, the investment - grade credit ratings from moody ’ s and s & p were preserved throughout the crisis. this is why the sovereign has been able to tap international capital markets twice so far since the crisis struck. so the bottom line is that a sovereign default was avoided in spite of an almost unprecedented financial collapse and the worst economic recession since the interwar years. a key to that result was the ring - fencing of the sovereign from the collapse of the private banks. all debt service payments on sovereign debt, in both domestic and foreign currencies, have been made in full and on time. but the avoidance of default during the crisis does not come without the willingness to use the means available to avoid that outcome, even in very adverse situations, and the ability to endure the temporary hardship that comes with it. in addition, iceland – like ireland, probably – was helped by

press forward with structural reforms, promoting good governance, increasing transparency, and harmonizing standards. this task must also include efforts to integrate the lowincome countries into the global economy. the current circumstances provide good reasons for addressing these issues. the international monetary fund has been at the center of world economic cooperation since its establishment. the fund should continue to play a crucial role in strengthening the areas i have emphasized through its surveillance and its lending activities.