so maintained and increased from year to year as to cover adequately not only imports but also the short - term liabilities, especially short - term debt and portfolio investment. further, the level of reserves also takes into account the operational need to enable the reserve bank to even out the mismatches between supply and demand in forex markets and thus ensure orderly conditions in a less developed market characterised by lumpy demands. on exchange rate, the possibility of persistent misalignments due to reasons other than domestic factors cannot be ruled out and correction cannot be left entirely to the market. the developing countries do need some armoury to address such issues. it appears almost certain that capital controls would be ineffective if, in popular perception, the exchange rate does not appear to be realistic. in other words, there is considerable merit in the argument that capital controls are not substitutes for an appropriate exchange rate regime even though capital controls facilitate avoidance of excess volatility in the exchange rate that may be caused by destabilising capital flows. finally, an integrated view of the state of development of and activities in financial markets is appropriate. the activities in forex markets and its linkages with other markets, especially money - market, debt market, especially government securities market, and equity markets, have to be identified and monitored while managing capital flows. recognition of linkages, monitoring the developments, and willingness to intervene credibly in any or all of these markets as appropriate may be essential. perhaps markets should be aware of the broad objectives of such intervention. as each of the financial markets develop and get integrated with others, measures to increasingly liberalised capital account could be considered. indeed, it is possible to argue that liberalisation of capital account would aid the process of development of financial markets, but this is valid only when some informed judgements are made in respect of each country on the interactions between the management of capital account and the financial markets. in any case, capital control or regulatory framework or liberalisation would be ineffective or unstable in the absence of proper appreciation of such linkages among financial markets. above all, irrespective of the extent of liberalisation, official monitoring and surveillance of large international transactions and players would be helpful in effective and credible management of capital account. in india, during periods of surges in capital inflows or pressures on outflows, operations in the external sector were coordinated with actions by the reserve bank in the money and government securities market to ensure stability. complementary policies there are

under the first purchase must be large ( i. e. a top - down staircase pattern of disbursement rather than the present bottom - up staircase pattern ) and the performance criteria must be relevant to deal with a capital account crisis ( implying less emphasis on conventional performance targets and complete avoidance of the saw - tooth problem ). since the imf would endorse the policy framework of a country before entering into a precautionary arrangement, repeated programme interruption and subsequent granting of waivers would need be avoided. overemphasis on “ safeguarding fund resources ” would reduce the effectiveness of a precautionary arrangement by subjecting the programme to performance criteria that would not be critical to deal with the capital account crisis. progress with crisis resolution initiatives efforts are also underway to develop collective action clauses ( cacs ) to augment a market - led process for restructuring of sovereign bonds. it is heartening to note that rapid progress has been made in promoting the inclusion of cacs in international sovereign bond issuances. we welcome the positive developments relating to the development of a voluntary code of conduct to deal with debt restructuring. we urge that the code should be developed in full and voluntary agreement of creditors and debtors and neither a mechanistic nor a prescriptive or standardized approach should be followed. in recent years, increasing attention has been accorded towards development and implementation of standards and codes to strengthen the international financial architecture. the imf and the world bank have taken the initiative to monitor and assess member countries ’ financial sectors as also their observance of standards and codes through reports on the observance of standards and codes ( roscs ). in future, roscs will help national authorities develop their own reform plans, assess compliance with international standards and codes, and serve, if published, as a signal of their policies ’ enhanced transparency. they will also provide helpful inputs for imf surveillance and technical assistance. accelerating poverty reduction and strengthening sustainable economic growth in low income countries millennium development goals, the monterrey consensus, and progress with the prsp approach : the role of the imf monterrey has generated consensus on the issues that need to be addressed to effectively alleviate poverty. this consensus needs to be transformed into concrete action urgently. a comprehensive and transparent system to monitor progress towards fulfilling the millennium development goals ( mdgs ) of poverty reduction, sustained economic growth, and promotion of sustainable development would need to be developed. the imf has attempted to achieve this through two programmes - the