in some evident macro - economic policy failure. at least in hindsight there are usually fairly clear tell - tale signs of expanding fiscal deficits and / or lax monetary policies, classically accompanied by evidence of imbalance in the form of accelerating inflation or a rapidly deteriorating balance of payments. there were such signs, perhaps most notably in thailand ; but they were not for the most part particularly pronounced in asia. in fact through the first half of the 1990s, and in some cases for much longer, the countries in question had been remarkably successful. they attracted, by their very success, huge inflows of capital from the rest of the world, where yields had fallen, in the hope of sustaining higher returns. there is no question that this capital inflow made a very big contribution to the economic expansion in asia ; but with the benefit of hindsight, the accelerating scale of the inflow, and particularly the forms that it took, became an important part of the problem. it was not all in the end productively employed. there was over - investment in some sectors ; much went into ambitious property development ; and much went into financial rather than real assets. the hoped - for higher returns could not be maintained. again with the benefit of hindsight, it is possible to identify a number of structural weaknesses in the mechanisms for financial resource allocation in the recipient countries. there was, for example, a general lack of reliable financial information, and a lack of transparency in relation to the financial position, of both public and private sectors. complex and opaque links between government, financial institutions and non - financial companies made it difficult for outsiders to understand the real nature of their exposures. financial markets were not well developed, leaving the system heavily dependent upon the banks. there was inadequate regulatory or supervisory oversight. there was widespread, often informal, government influence over financial flows, which importantly also contributed to a perception that much of the borrowing was implicitly under - written by the government. the list could go on. the problem was compounded by the absence of any real perception of exchange rate risk. borrowers were evidently confident that governments would maintain their exchange rate pegs against the dollar, even when it began to strengthen, so that unhedged foreign currency debt, much of it at short - term, appeared to be a cheap alternative to domestic currency borrowing. the result was a build - up of short - term foreign currency liabilities, by banks and non - banks, which was not fully appreciated, and

removing restrictions on the free flow of capital again domestically and internationally - essentially on the grounds that this can further improve the effective allocation of productive resources, increasing the benefits to be derived from competition in markets for goods and services. the imf is in fact currently working on an amendment to its articles of agreement to give it a greater role in promoting the liberalisation of external capital movements. of course, it remains true that market competition, and the supply capacity of the economy more generally, are inevitably influenced by virtually every other aspect of public policy, and will be affected to varying degrees by the particular social and economic judgements made by national politicians. this is true whether one is talking about direct public sector provision - of education and training, for example, or incentives to saving and investment, or current or prospective welfare provision, or the structure of taxation. and it is true equally of government intervention in the form of regulation and social protection. but my strong impression is that there is a growing awareness in many countries that policies in all these areas need to take account of potential supply - side effects, with an increasing bias towards structural reforms, in labour, product and capital markets, with a view to increasing employment and reducing distortions that impede efficient resource allocation. now i do not pretend to you, mr. chairman, that the international policy consensus that i describe - particularly on the supply - side - is fully articulated ; nor do i claim that it is subscribed to in its detail equally in every imf member country. but it does represent a substantial evolution in our collective thinking over the past decade or so towards a much more common approach to economic management, which serves as a valuable framework within which countries ’ performance can be assessed. the snail may have moved slowly but it has in fact travelled a considerable distance! it has nonetheless still a long way to go. its progress has been impeded in the past few years by the eruption of a number of financial disturbances - most recently in asia - which have drawn attention to continuing deficiencies in our approach to economic management ; and we spent much of the time last week in washington discussing what lessons we might learn from those events. the storm last year in asia struck essentially the asean four - thailand, the philippines, malaysia and indonesia - spreading subsequently to south korea and intermittently battering hong kong and elsewhere. it is still not wholly clear - to me at least - quite why the storm struck suddenly when it did. most crises of this sort have their origins