disorderly unwinding of these balances, we are cautiously optimistic that responsible actions by all parties will prevent such an event. in our region, we have significant adjustments in domestic demand, underpinned by improved economic fundamentals. as a result, the surplus countries in our region continue to experience a gradual but significant decline in their current account balances, partly due to the acceleration in the rate of exchange rate appreciation in the region. importantly, some members of our constituency have been able to utilize the fiscal space arising from past reforms, which is a contributing factor behind the stronger demand in these countries. nonetheless, the concurrent challenge is to keep inflationary pressures under control while ensuring that strong domestic demand does not lead to a build - up of imbalances. 4. notwithstanding the baseline scenario, it is clear to us that the fund is correct in identifying the financial turmoil as the single greatest risk to growth. in the us, given the loss of confidence, the immediate priority for the authorities was to limit the financial contagion and counter the downside risks to growth. following that, the first line of defense was monetary policy and monetary operations to inject liquidity. the second line was fiscal stimulus. we view these actions as steps in the right direction, although one should also recognize the limitations of such policies at a time of impaired balance sheets and ebbing sentiments. the third line of defense was using public money to safeguard the stability of the financial system. in view of the systemic nature of the crisis and the potential for spillovers we appreciate the need for decisive policy actions and the drastic unorthodox measures. indeed, our own experience during the asian crisis was that adherence to a market - centric philosophy in an environment where markets have seized up is simply not tenable. at that time, we advocated a more pragmatic approach that prioritizes the resumption of credit activities in the financial markets. while welcoming the newly - apparent pragmatism shown by national authorities in advanced countries and international bodies like the imf, we caution that actions must be carefully designed to return the system to stability without unduly giving rise to moral hazard concerns. 5. admittedly, any attempt to draw lessons now will be tentative as the crisis has yet to run its full course, notwithstanding the recent collapse of one of the biggest investment banks, which many have taken as a nadir in this crisis. our own view is that until a full extent of exposure to these markets

flexibility and compromise shown by the members of the executive board in agreeing to the package we have at these spring meetings. it is indeed a delicate balancing act, having to take into account the differing views and interests of all member countries. we particularly underscore important progress that we made to agree to a more transparent quota formula. with the inclusion of gdp at purchasing power parity in the gdp variable, and the tripling of basic votes, the quota reform could better account for the dynamism of emerging economies, while improving the representation of low - income countries. while no quota reform package is perfect, it is broadly in line with the objectives set out in the singapore resolution. like many others, however, we are disappointed that the headline shift of quota shares from advanced countries to emerging market and low - income countries – which will be the public ’ s point of focus – is a meager 1. 1 percentage points. 11. difficult compromises have been made, and we believe it is now time to bring this important issue to a close. agreement on the package by the fund ’ s membership will be critical to restore the fund ’ s credibility and legitimacy. within our constituency, many of us will still be highly under - represented after the second round of ad hoc quota increase. however, in the spirit of compromise and flexibility, we are prepared to support this package on the understanding that this is the first of many steps in a reform process which will eventually see all countries close their under - representation. in this connection, we underscore the importance of future realignment of quota shares on a periodic basis, beginning with the fourteenth general review of quotas, as is currently proposed in the package. we maintain that ppp gdp and compression factor should remain in the formula for it to credibly capture the dynamic contribution and relative economic size of countries in the world economy. we also support the future work program, in particular further refinements to the definitions of openness and variability to guide future realignment of quota shares. 12. the new income model is also a critical element of the reform package, without which the fund cannot discharge its functions properly. we are pleased to note the broad consensus on the core elements of the proposed new income model for the fund and are prepared to give our support to the emerging package. we would simply underline the importance of establishing the necessary governance arrangements that allow the board and the management to deal effectively with the risks that broadening the fund ’ s investment