##ncies such as the dollar, allowing for additional regularity in price adjustment. private market processes have served this country and the world economy well to date, and we should rely on them as much as possible as we go forward. this is not to say that the official sector will have no role to play in the next global crisis, or the one after that. official safety nets and interventions cannot be eliminated entirely. there are limits to the size and extent of the shocks that the private sector can manage, at least in the short run, without official assistance. however, official financial support should be kept to a minimum for reasons of fiscal prudence, resource allocation efficiency and avoidance of moral hazard over the long run. there is, of course, in any economic system the necessity for sound monetary and fiscal policies, the absence of which was so often the cause of earlier international financial crises. with increased emphasis on private international capital flows, especially interbank flows, private misjudgments within flawed economic structures have been the major contributors to recent problems. but inappropriate macroeconomic policies also have been a factor for some emerging market economies. we may be in a rapidly evolving international financial system with all the bells and whistles of the so - called new economy. but the old economy rules of prudence are as formidable as ever. we violate them at our own peril.

an exception was made for developing countries, whose debt had always been a bit dicey, with many of them becoming serial defaulters. the west could lecture the south on getting their economic policies straightened out before they could grudgingly extend some much - needed debt - relief. “ it ’ s the economy, stupid! ” as us president bill clinton famously put it. that was then. now that the us itself is drowning in debt, and runaway sovereign debt is raising the spectre of a eurozone break - up, it suddenly looks as if clinton should revise his stand : “ it ’ s the politics, stupid! ” would be closer to the truth. silvio berlusconi and george papandreou have already paid the price to placate the bond vigilantes. others may follow if they fail to navigate the treacherous waters between citizen and taxpayer revolt, on the one hand, and investor rebellion, on the other. france faces a threat of downgrade. even fiscally - upright germany failed to place nearly half the amount of ten - year paper on offer at a recent auction. moody ’ s is now threatening a generalized derating of eurozone debt. the us has lost its triple - a rating, as standard & poors derated it. to rub in the point, the agency berated washington politics and the fiscal brinkmanship characterising the us response to the crisis. in the words of standard & poors, the politicians have become “ less stable, less effective, and less predictable. ” and where ’ s mauritius in all that? we can count ourselves lucky that we are not hooked on foreign commercial debt. we do not face any rollover risk. we are not at the mercy of unforgiving markets. and all of us, and not just our politicians, can sleep easy on this score. how many of us know that, in their monumental work on economic and financial crises, this time it ’ s different, kenneth rogoff and carmen reinhart, paid mauritius – and a handful of other countries – an ultimate accolade when they called us “ debt default virgins ”? and, while we are on this subject, may i invite you, when you get the time, to cast a glance at the shape of the yield curve for government rupee debt? you may be surprised to discover how we have actually smoothed the curve and reduced volatility – and that, too, during a crisis. we do not know