Introduction

Since the mid-1990s, the incidence of financial crises among emerging-market countries appears to have increased (Hoggarth and Saporta, 2001). In response, governments and international financial institutions have worked intensively on ways to reduce the likelihood and virulence of crises. This is the debate on the so-called ‘international financial architecture’ (see, for example, Eichengreen, 2002, for an overview).

There is now a fairly widespread consensus within the official community on appropriate crisis-prevention measures (King, 1999; Eichengreen, 2002). For example, the best defence against financial crises is to establish sound macroeconomic fundamentals and to have a credible policy framework in place to deal with economic and financial shocks. A broad international consensus has also emerged on the importance of prudent balance sheet management, with a particular focus on the balance sheet positions of governments and the financial system. Considerable work has also been done by international groups to establish codes and standards of best public policy practice. The official community should not be prescriptive about the adoption of standards. But it should promote transparency about the degree of country compliance with them (see Drage and Mann, 1999).

Even with such prevention measures in place, however, crises will still occur from time to time. Moreover, there is less consensus among policy-makers on appropriate crisis-resolution measures in these circumstances. This fact is well recognised by, among others, the IMF (Krueger, 2001). The IMF has responded to crises by providing often large-scale lending packages, conditional on the implementation of macroeconomic and structural reform.