and will not be able to find out fast enough to prevent a rout. good institutions then go down with the bad. it is actually in the long - run interest of financial institutions that aspire to be the survivors of a shake - out to insist that supervisors are well informed and applying a high standard. another lesson of recent events in asia has been the importance of clear, enforceable bankruptcy laws in dealing with a crisis, as well as helping to prevent one. bankruptcy provides an opportunity, not only for closing down truly insolvent enterprises in an orderly way, but for rescuing troubled ones by allowing them to cut a deal with their creditors, restructure their obligations, and go on operating on a sounder basis. but bankruptcy procedures cannot be rapidly invented or first tested in a crisis. for bankruptcy procedures to mitigate crises effectively and help to get survivors on their feet, there has to be a “ culture of bankruptcy ” which operates in good times as well as bad. debtors, creditors, lawyers and courts have to be used in the process, know what to do, be able, because they have done it before, to cut the deals that will minimize the damage and keep potentially profitable enterprises afloat. asian countries, most obviously indonesia, found that since their modern market experience had been primarily one of boom and growth, they had inadequate bankruptcy laws and little “ culture of bankruptcy ” to help manage a sudden negative turn of events. improving transparency, supervision and bankruptcy procedures will help emerging market economies grow more sustainably ( albeit perhaps slower ) and manage downturns better when they happen. but the conceptually hard questions involve international collective action and how it can manage major crises more effectively. once a crisis hits one country, especially a country of significant size and linkage with others, the whole international community has a strong interest in rapid action to isolate markets and prevent the contagion from spreading and engulfing others. at this moment, the community looks to the imf to act quickly, provide liquidity and restore confidence, especially the confidence that the crises has bottomed out and will not be part of a continuing downward spiral. asia in 1997 was a demonstration of how fast the dominoes could fall. when the root cause of the problem is inappropriate macro - economic policy, especially big budget deficits and easy money combined with a pegged exchange rate, it may not be difficult for the imf to restore confidence by injecting enough liquidity to pay short - term

claims in foreign currency in return for rapid changes in policy. when macro policy is not obviously the chief culprit, restoring confidence may be harder and more expensive. injecting new money in exchange for reforms may still be the primary answer, but the patience of taxpayers wears thin as amounts escalate and it is perceived that some classes of creditors are being bailed out with official international resources - - creditors who should have calculated the risks more accurately and should bear the cost of not having done so, so they won ’ t do it again. some have asked whether official resources could be saved and moral hazard reduced by designing an automatic international bankruptcy - like process, known in advance, by which a standstill could be triggered, followed by a set procedure for sharing the burden among all the relevant creditors. serious thought is being devoted to this issue. it is not hard to imagine such an approach, but all crises are different and applying a cooky cutter solution could well do more harm than good. the next few years will be a testing time for what i think of as the “ cross - border community ”, meaning the organizations, public and private, dedicated to making the cross - border relationships ( especially business and financial ones ) work better. the “ cross - border community ” includes mega firms that produce goods and deliver financial services on a worldwide scale, and associations of accountants, lawyers, bankers, securities dealers, insurance underwriters and various kinds of financial regulators as well as general international financial institutions ( the imf and the world bank ) and more specialized ones such as the bank for international settlements, and the regional development banks - - to mention only a few of the more obvious members of a burgeoning species. the benefits of cross - border trade and capital flows for raising the world standard of living are clear, but so are some of the costs - - especially the costs to ordinary people of being caught in the backwash when there is a crisis. if these costs are not taken seriously and methods designed to mitigate and manage financial crises better, a wave of political backlash against capitalism, foreigners and what we all think is “ progress ” could result. one lesson of recent crises is that factories, banks, shiny buildings, and eager investors do not by themselves create the underpinnings of modern economic society able to withstand shocks with minimal damage. that takes - - in addition to good fiscal, monetary and other public policies - - an infrastructure of laws and traditions and expectations that cannot be