creditor - based statistics. a common tactic, seen both in hong kong and later in south africa, was for hedge funds to sell short the currency as well as a long - duration investment ( e. g. shares and bonds ) whose value was particularly sensitive to short - term interest rates. if the monetary authority supported the currency by raising interest rates, the speculators profited from the domestic play. if the monetary authorities let the currency slide, the profit was on the currency play. see bis ( 1998a ), chapter v. regulate this kind of activity at all types of institutions, in turn raising the issue of how to prevent it from simply moving offshore. what does seem to have been agreed in the international community is that it would be desirable to have more information about the activities of highly leveraged investors who are internationally active. not only does this seem prima facie a good thing, but some authorities also consider such information a fair counterpart to the provision of more information by public sector authorities about their own off - balance sheet activities. 18 currently, three avenues are being actively explored within the basle community. the basle supervisors are primarily concerned about the health of banks and wish to be assured that the loans made to highly leveraged institutions are subject to the proper kind of credit analysis. a subgroup of the bcbs ( the brockmeijer working group ) has already published two documents, one outlining deficiencies in past banking practices and the other suggesting guidelines for good practice in the future. 19 the cgfs has two initiatives under way. one is a reprise ( under the same chairman ) of the 1994 fisher report20 which acted as a catalyst for enhancements to disclosure practices by financial institutions in relation to market and credit risk exposures arising from their trading activities, including those involving off - balance sheet instruments. the primary objective of this exercise is to encourage further improvements in disclosure so as to ensure that market participants have an adequate basis for an appreciation of the risks they are running in dealing with, investing in or lending to, financial institutions. the second cgfs initiative is to examine what kind of aggregate information about exposures would help to improve the functioning of markets, taking as a starting - point the bis international banking statistics. having adequate knowledge about short - term capital flows is one thing. establishing an exchange regime to minimise their disruptive effects, while maintaining their longer - run efficiency benefits, is quite another. as already stated, a country cannot have completely liberalised

economies after crisis prevention fails? more generally, it is cause for deep concern that new thinking on international financial architecture may involuntarily have counterproductive effects on latin america. our concern is that we simply end up with lower capital inflows and growth but no worthwhile gain in stability. subjecting the private capital to uncertainty and discretion will have this effect. the curtailment of official financial support with the purpose of eliminating moral hazard would at the same time fail to prevent liquidity crises. if the latter is more relevant than the former, as i think it is in latin america, the result would be not only less capital but also less stability! let me offer some concrete examples of our concerns in connection with the currently proposed modification of the basle capital accord for bank credit risk. as i already mentioned, idb has long had an interest in strengthening the regulatory framework for banks and making it flexible to accommodate financial stress. to the extent that the new regulatory capital rules provide emerging market supervisors with stronger tools for assessing the strength of a bank and for encouraging bankers to improve their risk management systems, i believe that the proposed new rules could contribute greatly to the development of more mature lending markets. having said that, it is important to recognize that in this proposal the cost of capital will increase in most of our countries. as you know, at present net bank lending has largely disappeared already and this may be a lethal blow to this class of credit. i am not sure this is a cost worth paying. apart from that, there are a number of concerns that i take the liberty to stress : • we do not think that the use of private rating agencies to determine capital requirements for sovereign lending is a good idea. first, it puts the agencies in a position to play god with countries ’ fortunes, which neither the region nor the agencies want. and second, it is likely to be destabilizing as agencies try to conform to market perceptions. • in contrast, in latin america we like to think that internal rating systems are a more sensible basis for a bis system. i should also mention that a number of countries in the region have successful public credit bureaus that should also be taken into consideration as a possible standard to be used in setting requirements. • the proposal that no private company should receive a rating better than its sovereign ’ s is not consistent with the evidence of corporate and sovereign market risk spreads and appears to be an artificial limitation. • capital requirements on short - term loans