and final point involved a rebalancing of global demand. excess domestic demand in countries with current account deficits would be eliminated or reduced to manageable levels, and replaced by increased external demand from other, surplus, countries. meanwhile, surplus countries were expected to boost their domestic demand and become less reliant on export - led growth strategies. although these growth strategies had proven amazingly successful in many emes, they were often supported by persistent, large - scale, foreign exchange intervention and extensive capital controls intended to keep their currencies undervalued. with most deficit countries now played out and in the process of shrinking their demand, this was a strategy that couldn ’ t continue. structural reforms in these emes, supported by more flexible, market - determined exchange rates, are required to sustain growth. the good, bad and ugly scenarios at the outset, observers were cautiously optimistic about the plan and, contrary to the warnings of reinhart and rogoff, believed that this time it might really be different. 5 ideally, the appropriate combination of policies would shorten the recovery time and lead to a much better long - term equilibrium. the experiences of the five advanced countries that reinhart and rogoff had identified in their study, and that had been hit by financial crises earlier in the postwar period, would not be prologue to what advanced economies were about to achieve through concerted action. regrettably, the trajectories of both the u. s. and european economies to date have been remarkably similar to these five countries ( see the blue line on charts 5 and 6 ). it would be a mistake, however, to assume that this experience represents some sort of immutable path toward which economies must necessarily gravitate following a crisis. such an attitude is too defeatist and fatalistic. good policy can – and does – make a difference. it is important to understand that the four points of the g - 20 framework that i described earlier are mutually reinforcing. the first three points, though they are essential for stable and welfare - improving outcomes in the future, were known to have deflationary effects in the short to medium term, depressing global demand. the fourth point, the rebalancing of global demand, was necessary to counter these sizable headwinds, supporting global growth until the positive effects from the other three kicked in. in an effort to highlight the costs of policy failure or, stated more positively, the potential gains from policy

to build a liberal economic order and framework for freer trade. but it's difficult to discuss problems and find solutions if key players don't feel that they are adequately represented. there is a crucial need to build an international financial institution that is seen as meeting the needs of all members. a good start would be to re - examine the representation of asian and other emerging - market economies, and the implications for their quotas and voting power on the imf's board. a larger stake by asian members in the imf also implies greater responsibility on their part for the success of the fund as guardian of the international monetary and financial systems. indeed, by taking greater responsibility, asian nations would affirm their commitment to the fund's important objectives. moreover, by being able to draw more on the strengths of the asian economies, the imf would be in a better position to do its job properly. conclusion i truly hope that such an institution - one that makes progress in these four areas - will emerge from the strategic review of the imf that is currently underway. the creation of a global institution for the twenty - first century is tremendously important, not just for canada, but for all nations. if we can get it right, a more effective imf would be helpful in the worldwide effort to resolve global imbalances in an orderly way. but a global institution can't do it all by itself. policy - makers around the world need to make sure that they are part of the solution and not part of the problem. all countries must recognize that it is doubly important to pursue the sound domestic policies that i mentioned - the promotion of flexible markets, the creation and maintenance of a sound financial system, and the pursuit of sound fiscal and monetary policies. clearly, following these policies is in each country's own domestic interest. but the benefits would flow beyond national borders. if we all follow appropriate policies, then market mechanisms can defuse the danger posed by global imbalances. and that is an outcome that is in everyone's interest.