crisis. these policies include, among other factors, the need to support an appropriate macroeconomic and microeconomic environment, the need for a market - oriented system with a high level of competition, openness to international trade and investment, price stability and exchange rates that broadly reflect international competitiveness. all of this has led to a shift in the crisis prevention strategy employed by the imf. the imf now concentrates on identifying vulnerabilities, such as excessive sovereign debt or balance sheet mismatches. also, its stance on capital account liberalization has changed. today, the imf advocates that member countries should first have the institutional capacity and a relatively strong financial sector with a sound supervision regime before taking this major step. in fact, before fully liberalizing all capital movements in 1991, austria had followed this policy. back then, austria was criticized for this policy which has now become conventional imf wisdom. one important initiative in the sphere of crisis prevention is the financial sector assessment programs ( fsap ), which are conducted together with the world bank. an fsap is designed to establish a profile of the strengths and weaknesses of the financial sector of a given country. this initiative is not only geared towards emerging market countries ( emcs ) or developing countries, but also towards industrial countries. austria, for example, just conducted an fsap with excellent results. another important area constitutes economic and financial standards and codes, which are formulated in collaboration with public and private sector institutions. their aim is to promote meaningful comparable statistics, transparency rules for fiscal and monetary policies and supervisory standards for the banking, securities and insurance sectors. this is meant to facilitate the integration of countries into the global economy. will all of these initiatives prevent financial crises altogether? overshooting and correction will always be part of financial markets. this means that in an open and dynamic market economy there are limits to our capacity to anticipate and prevent crises. however, with skillful and prudent economic, monetary and financial policies, crises should occur less often and they should be less severe. 4. crisis management and resolution over the last 20 years, the bretton woods institutions had to deal with a continuous series of financial incidents. these crises encompassed economic misalignments and systemic vulnerabilities, such as evinced in the mexican or east asian financial crises and financial disruptions due to contagion across countries and markets, as for example during the russian debt default of 1998. the success of

the bretton woods institutions should be reflected in a declining trend of the overall number of fund - supported programs over time. there are legitimate cases which require access to fund resources. however, the fund ’ s financing role should and can only be catalytic, given its limited resources. while policies, such as the exceptional access framework, are in place to safeguard fund resources, they are often not adhered to. i am also concerned about the prolonged use of fund resources which is out of line with its mandate. countries that run imf - supported programs over many years or decades are probably not a demonstration of success. thus, the imf should strive to prevent that countries become dependent on imf financing. during the debt crises of the early 1980s, the imf acted more as a crisis manager or the official agent in charge of concerted bank lending. this role has shifted over the years, with the fund now practically resolving countries ’ financial crises on its own. an important initiative to reposition the fund once again as a crisis manager came to be known as the private sector involvement ( psi ) initiative. psi encapsulates the official sector ’ s attempt to engage the private sector in crisis resolution more effectively. the private sector has to assume responsibility for its investment decisions. this is grounded in my firm conviction that a collectivization of private sector losses would distort the allocative efficiency of capital markets and would lead to moral hazard via increased risk - taking. another important initiative, which the imf started to discuss in late 2001, proposed to establish an international bankruptcy procedure for unsustainable sovereign debt ( sdrm ). i believe that this mechanism would have made the psi initiative more operational. however, the time may not have been ripe yet for such a comprehensive framework for the restructuring of sovereign debt. nevertheless, public and academic awareness has been raised. the debate has helped in that many emcs have introduced collective action clauses ( cacs ) in their sovereign bond contracts and major emcs and the private sector are discussing a code of conduct. this notwithstanding, i am firmly convinced that we need an international arrangement which would facilitate the orderly resolution of sovereign debt crises. such an arrangement would also help shift the function of the imf from its current role as crisis solver to crisis manager. 5. economies in transition, developing countries and poverty reduction in addition to finding more effective mechanisms for crisis prevention and management, the international community faces another major challenge, the eradication of poverty. one