for the financing of consumption and investment. thirdly, the deleveraging process to reduce the absurd excessive gearing ratios of some mega - sized financial institutions can only be accomplished by a reduction in world liquidity. taking account of the magnitude of the problem of over - leveraging as evidenced by the balance sheet information recently released for ltcm, this can become a major constraint on the availability of new funds in the global financial market over the next year. against this background, the world can only extricate itself from this complex problem by a coordinated effort applied from three different levels : firstly, many macroeconomic deficiencies were exposed in a number of countries that in the end suffered most from the global financial crisis. it is dangerous to generalise the shortcomings as they would obviously differ from country to country and would therefore also require specialised treatment suitable to the underlying situation in each one of the affected economies. a number of countries such as thailand, korea and the philippines have already addressed their problems with appropriate adjustment programmes, and are beginning to reap benefits from often painful corrective measures. these adjustments provide for more disclosure and transparency, enhanced financial regulation and supervision, recapitalising of banking institutions, more restrictive monetary and fiscal policies, exchange rate adjustments and improved governance in macroeconomic management in general. secondly, all the criticism against the multinational institutions, and particularly against the imf, is not without foundation. these institutions did not keep up with the accelerating process of financial globalisation in recent years, and with the rapid integration of world financial markets. economic policy models that may have been appropriate in the old system where central banks and governments could still exert strong influences on the direction of major financial aggregates such as interest and exchange rates and could effectively control changes in the money supply and in bank credit extension cannot be applied without adjustment in the new world where market forces now dominate the scene. some changes in the global financial system have become necessary and urgent. these institutions are now concentrating on increasing their resources, e. g. imf quotas, on improving their surveillance functions and on revising the “ architecture ” of their existing infrastructural frameworks. thirdly, after the ltcm affair, there is an urgent need for multinational banking and other financial institutions to revise their own internal risk control models. the action taken by malaysia recently to reintroduce exchange controls on international capital movements and the de facto default by russia in its inability to redeem its public debt

global authorities themselves did with their control and surveillance systems. the approach now should not be for the markets to be stopped in their progress, but rather for the authorities to catch up. private sector financial market operators, including multinational banking institutions, hedge funds and institutional fund managers, must in their own interest reconsider and review their modus operandi in the markets. in particular, risk management models must provide for the volatile global financial environment in which they now operate. many encouraging signs emerged from the discussion in washington d. c. to indicate that progress is now being made at all three levels, and that greater stability is gradually returning to the world financial system. south africa, like many other countries in a similar situation, is watching these signs of hope with great interest.