restructuring their troubled financial systems. for example, in asia, where some of the most severe problems were encountered, governments have spent over $ 500 billion carving out problem loans and bolstering capital. • growth rates have improved with the restoration of domestic stability and recovery in external demand. indeed, aggregate growth currently is running at its highest rate since the onset of the crisis in 1997. • with these improvements, and generally accommodative external financial conditions, borrowing costs have fallen, capital market access was restored for many countries, and credit growth resumed. net credit growth to sovereigns has remained moderate, however, as much of the borrowing has gone to refinancing the existing stock of debt on more favorable terms. • the market for emerging market debt also has matured. there has been more differentiation in the response of spreads, both on the way down as credit fundamentals seemed to improve, and during the recent correction. this progress is indicative of a general increase in the sophistication and skill of economic policy makers in the emerging world, and in the quality of understanding of the benefits of macroeconomic stability and how to achieve it. many countries benefited from the advice and financial support from the imf and the multilateral development banks. but the most successful were those with policy makers who were ahead of the fund and the bank in diagnosing and addressing their problems, rather than being dragged reluctantly toward a more credible policy stance. these improvements have left the emerging markets as a group less vulnerable to financial crisis than they were in the mid - 1990s. the combination of deeper reserve cushions, stronger external positions, improved balance sheets, more flexible exchange rate regimes, and better inflation performance provide a very different setting from what existed the last time we faced a transition after a sustained period of benign financial conditions and low interest rates. these aggregate improvements mask substantial differences across countries and a number of areas of lingering vulnerability. let me highlight some, and then suggest some implications for how the fund might better position itself to deal with the challenges they present. • some of the most daunting challenges are in the fiscal and public debt area, where a number of emerging market economies across different regions face very high, and in some cases still growing public sector debt levels. average public debt burdens in the emerging world have risen to about 70 percent of gdp, and among countries rated single b and below, the mean rises above 80 percent. • the challenge of managing debt burdens of this size is mag

with contingent access to fund resources. surveillance today does not provide a meaningful check on ex ante policies, and resources are only made available when the financial need is acute. access to supplemental resources from the fund on a precautionary or contingent basis could make a critical difference in preventing short - term liquidity crises from becoming full - scale solvency problems leading to default. of course, access to such contingent financing should be limited to countries whose policies were judged reasonably sustainable, and consistent with a reduction in balance sheet risks over time. with an enhanced surveillance framework designed to help keep policy on a stronger path that does reduce risk over time, and with contingent finance that could be mobilized quickly, the fund would be better positioned to contain the risk of deeper financial crisis. and more of the policy reform that is a necessary accompaniment to fund finance resources could be supported ex ante, rather than ex post. catalyzing better policies sooner is the best defense, though it will never be a perfect defense, against crises. facilitating restructurings we have seen some progress in the last few years in efforts to improve the framework for sovereign restructurings. in particular, collective action clauses have now become the market standard where emerging market governments issue debt under foreign law. it will take some time for the full stock of sovereign emerging market debt to include these provisions for restructuring by majority action, but this progress is nonetheless important. but there are also some experiences that overshadow these more encouraging developments, and expose a breakdown in the broad consensus that had formed the basis for the successful past strategies of collaboration among the official sector, borrowers, and private creditors. without commenting on the specifics of any particular case, let me offer a view of what i see as fundamental tenets of a credible approach by the international community to situations where a sovereign finds it necessary to restructure its obligations to private creditors : the imf should be willing to lend to a sovereign that is in default to its private creditors only when two conditions have been established : first, the country must commit to a credible medium - term adjustment program, one that offers the prospect of a successful restructuring and a reasonably early return to the capital markets. this has to be established up front for any restructuring effort to work. commitment to a credible adjustment path that offers the reasonable prospect of a return to financial viability and growth is the necessary foundation for engagement by the creditors in a restructuring process. without that, there is little basis for meaningful engagement. the science of