of action, we could reverse at least part of the palpable gains achieved by postwar globalization. it is incumbent upon us not to allow that to happen. i trust that we will go forward expeditiously with the pending new trade round. the differences to be resolved in such talks are small relative to the larger issue of maintaining our freedoms to travel and trade on a global scale. globalization admittedly is an exceptionally abstract concept to convey to the general public. economists can document the analytic ties of trade to growth and standards of living. a far greater challenge for us has been, and will continue to be, making clear that globalization is an endeavor that can spread worldwide the values of freedom and civil contact - - the antithesis of terrorism. globalization, in addition to its myriad material benefits, needs to be seen as a reflection of human freedom in economic terms by a vast majority of its participants. it needs to be seen as offering opportunities to raise the standards of living of all participants in the world trading system. if we fail to make that case, renewed barriers to commerce could fill the void, and the advances associated with globalization could be slowed or even reversed. should that occur, a few might be better off. surely, the world will not.

issue of a tradeoff between growth and civility were not in dispute, much of the debate that surrounds globalization today would have long since been silenced in its favor. but even if open and free global markets are consonant with political freedom and have in the past contributed greatly to raising world standards of living, there still remains the important practical issue : can globalization continue to work? is it as viable a model for world economic growth now as it has been in the past? despite globalization's patent capacity to elevate standards of living over time, we have been challenged by periodic disruptions in the system's functioning. the financial crises of 1997 - 98 and the stresses apparent in some emerging - market economies over the past year underscore evident structural weaknesses in our global system. it can readily be argued that certain conditions of stress increase the probability of emerging - market country default and potential contagion. for example, extensive short - term foreign currency liabilities of financial intermediaries that are used to fund unhedged long - term lending in a domestic currency are tinder awaiting conflagration. this is especially the case if foreign currency reserves are inadequate and exchange rates are fixed. but why has this phenomenon in different garb reappeared so frequently in the postwar era? no nation deliberately seeks to expose itself to financial distress and bankruptcy. but political pressures can lead to actions that increase these risks. in all economies, political constituencies seek to employ the powers of the state to increase their share of limited government resources. while the record of developed economies is far from unblemished, they have had greater success in fending off such demands. one indication of that success is that exchange rate regimes have not often been upended by domestic political pressures in these economies. although the range of outcomes has been wide, many emerging - market nations have had less success in insulating their international financial positions from domestic political pressures. those pressures, at times, have become exceptionally difficult to deal with. to close the gap between the financial demands of political constituencies and the limited real resources available to their governments, many countries too often have bridged the difference by borrowing from foreign investors. in effect, the path of least resistance has been external borrowing rather than confronting politically difficult tradeoffs. periodically, as an economy borrows its way to the edge of insolvency with debt denominated in foreign currency, government debt - raising capacity appears to vanish virtually overnight. it is this vanishing capacity that characterizes almost