of the international response have contributed to a wide - ranging debate on the basic rules and institutions that govern global finance. recent efforts to improve the global financial architecture began at the halifax summit of the g7 leaders in 1995. the meeting of the g7 finance ministers and central bank governors ( held in london, 21 february 1998 ) called for a “ profound and broad - ranging debate on the lessons of events in asia and their implications for strengthening the international monetary system, building on the reforms initiated at halifax ”. the g7 identified five main areas where progress had to be made. this is not the place to take stock of the proposals that have been put forward. let me just air a few remarks on certain measures, which i consider as particularly important. i would like to discuss the proposals addressing imbalances and structural distortions in the crisis countries before considering those concerning the international financial markets and institutions issues. efforts to strengthen emerging countries financial systems making them more resilient to external shocks the main effort contributing to the strengthening of emerging market economies ’ banking systems is the adoption of the set of core principles for effective banking supervision which have been widely endorsed by emerging countries authorities. the imf in coordination with the basel committee on banking supervision is designing indicators to assess progress in implementation by emerging countries. the adoption of the implementation of the core principles as a criterion giving access to the newly created contingent credit line is a strong incentive for members to adopt them effectively. the design of deposit insurance schemes is another important measure contributing to reduce or eliminate implicit government guarantees limiting moral hazard on the lenders as well as on the borrowers side. foreign direct investment in the banking and the financial sector should also be encouraged as it allows the transfer of technology and management skills. but it should be clear that such an opening up of the capital account should, in times of financial stress, not lead to fire - sale prices. measures aiming at protecting the financial system liquidity from the adverse consequences of sudden changes in market sentiment ( the so - called “ liquidity - at - risk policy ” ) should be given further consideration. the argentine authorities have adopted such a policy by introducing a liquidity requirement on banks ’ short - term liabilities ( foreign as well as domestic liabilities ). this system has been supplemented by a contingent liquidity facility with a number of international banks. more generally, policies designed to discourage excessive short - term foreign borrowing and based. on market mechanisms should be supported. for instance, unremunerated reserve

interest rate policy. you, the private sector, analyse this information and act upon it. unlike the situation in the past, when international businesses were led to believe that the future path of exchange rates was predictable, today we have a more realistic situation in which the business community knows that shocks can occur, and that what is predictable is the way in which the central bank will react to them. in addition to a more stable international monetary order, this new paradigm has brought us many other advantages : lower inflation, lower real interest rates and lower international spreads are additional achievements. after decades of high inflation and even recurrent episodes of hyperinflation in various emerging markets, the last ten years have been marked by low stable inflation in most caramazza, f. and j. aziz ( 1998 ), fixed or flexible? getting the exchange rate right in the 1990s ', imf, economic issues 13, april. eichengreen, b. and raul razo - garcia ( 2006 ), the evolution of exchange rate regimes, economic policy, july, pp. 309442, table 1. countries of the world. price stability has benefited all. consumers benefit, of course, because their income is no longer eroded by price growth. but producers have also gained because price stability helps them to plan ahead. lower inflation and confidence in central bank policies have, in turn, reduced uncertainty about future price developments. the lower inflation risk premium is allowing even industrial economies to grow at lower real interest rates than in the past. and, finally, an unambiguously beneficial consequence of the new international monetary order is that it allows for more efficient distribution of capital. at the same time as the current polarisation of exchange rate regimes has come into being, financial globalisation has intensified. capital controls are being lifted in a growing number of developing countries. in the 1970s, net flows of private capital to the world's poor countries amounted to a little over 1 % of host - country gdp. 3 by the end of the 1990s, this percentage figure had grown by a factor of three. today, there is a broader acceptance of the benefits to be derived from financial liberalisation. indeed, the gains expected from a free market for international capital are substantial. global finance allows for a better allocation of world resources, enhancing the prospects for growth of all nations. for richer countries of the world, there are new investment opportunities to finance the expanding needs of their aging populations. younger and poorer nations obtain access