money, there is less motivation for creditors to be careful with risk assessment when loans are made. and there is little motivation for early, serious discussions between a debtor and its creditors when problems begin to arise. in fact, the only serious motivation comes when the crisis is full - blown and official money runs out. clear limits would encourage better risk assessment, earlier negotiations, and conceivably, a quicker and more orderly resolution of the crisis. of course, one could eliminate official assistance altogether and leave debtors and creditors to work it all out on their own. but with no official lending, disorderly defaults could occur more frequently, resulting in unnecessary output losses and financial - system disruptions in the affected countries and elsewhere. over the past couple of years, the bank of canada and the bank of england together have developed a " middle ground " approach, designed to encourage private lenders to work closely with debtors to find timely, orderly solutions. in our joint work with the bank of england, we set out a framework for the resolution of international financial crises. this framework has three basic elements. first, official assistance should be limited, and the limits should be well known in advance. ( these limits are often referred to as the " presumptive limits. " ) the second key element of our approach is the possibility of exceptional official lending in the unlikely event that a crisis threatens global financial stability. but such lending would be based on explicit criteria and procedures. third, it is recognized that, under certain conditions, an orderly standstill ( that is, a temporary suspension of debt - service payments ) may be appropriate to give distressed debtors some time to take steps, including debt rescheduling, to address their problems. in addition, the framework encourages greater use of what is known as " collective - action clauses. " these clauses are intended to discourage " rogue " creditors from blocking or rejecting a reasonable offer for debt restructuring. such a framework, by providing greater clarity upfront about the size and terms of the official assistance available, allows debtors and creditors to form more realistic expectations. in so doing, it helps to prevent crises ; and, should they occur, it creates the right incentives for their timely resolution. in many international forums — imf, g - 20, g - 7 — canada has been working hard to encourage the adoption of such a framework. and last month, g - 7 finance ministers and central bank governors adopted an action plan that aims to address many

##hell, the united states has been running a very sizable current account deficit for a number of years, while most of the rest of the world – especially asia and oil - exporting countries – has been running current account surpluses. large imbalances such as these are not sustainable over long periods, so the question arises : what needs to be done to effect an orderly resolution? two main adjustments are needed. first, those countries with large surpluses need to rely more on domestic demand as a source of growth, and those with deficits ( mainly the united states ) need to increase their national savings rate. second, there is a need for more exchange rate flexibility. this is particularly the case for china, but also more broadly across southeast asia. china continues to resist exchange rate flexibility, and thus adjustment, through the accumulation of foreign exchange reserves, which now total us $ 1. 5 trillion. i want to quickly add that greater exchange rate flexibility is in china's own best interest. it would greatly enhance their ability to manage their own economy, including dealing with their mounting inflationary pressures. the third major challenge is the integration of china and india into the global economy. not surprisingly, some perceive the growing economic clout of and competition from china and india as a threat, especially as both countries increasingly produce more high - value - added goods and services. but the growth of emerging - market economies represents a tremendous opportunity for canadian businesses. we need to exploit our comparative advantages and see these rapidly expanding markets as places to do business. so, that's a quick look at some of the trends in and the challenges posed by the global economy. let me now turn to the home front and discuss some key economic issues facing canada and ontario, in light of these global developments. canada and ontario in the global economy these global economic trends represent significant and, in a very real way, competing or contrasting, forces shaping developments here at home. strong commodity prices are generating a substantial boost to incomes in canada. in economic jargon, we have had an increase in our terms of trade – the prices of the products we sell internationally are rising faster than the prices of the products we import. the resulting rise in real incomes is providing support for domestic demand in canada, which has been showing up in rising consumption, construction spending, investment in machinery and equipment, and, more broadly, in employment gains. at the same time, the weakness of the u. s. economy, the strength of our dollar