ABSTRACT
The issue of crisis prevention has come powerfully to the fore owing primarily to two aspects of the experience of financial distress of the late 1990s. First, the massive resort to official financing to cope with an emergency in one or more large countries and to design a rescue package raises the question of the adequacy of official reserves in globalised markets. Second, the international community is willing to shoulder the burden of intervention aimed at managing crises that, in many cases, are triggered by structural distortions or errors in economic policy, and that willingness accentuates moral hazard for debtors and creditors alike — so much so that such intervention becomes politically unacceptable. There is a risk of fuelling mismanagement by governments that resort to foreign credit and of fostering superficial evaluations of creditworthiness by the markets and intermediaries that provide finance.
