ls of the work on the international financial architecture is to develop standards and codes that are based on internationally accepted principles that can be implemented in many different national settings. Clearly the crises would not have developed as they did without exposure to global capital markets. But nor could these countries have achieved their impressive growth records without those financial flows.These were complex crises, resulting from an interaction of shortcomings in national policy and the international financial system. Individual governments and the international community as a whole are taking steps to reduce the risk of such crises in future.At the national level, even though several of the countries had impressive records of economic performance, they were not fully prepared to withstand the potential shocks that could come through the international markets. Macroeconomic stability, financial soundness, open economies, transparency, and good governance are all essential for countries participating in the global markets. Each of the countries came up short in one or more respects.At the international level, several important lines of defense against crisis were breached. Investors did not appraise risks adequately. Regulators and supervisors in the major financial centers did not monitor developments sufficiently closely. And not enough information was available about some international investors, notably offshore financial institutions. The result was that markets were prone to "herd behavior"— sudden shifts of investor sentiment and the rapid movement of capital, especially short-term finance, into and out of countries.The international community is responding to the global dimensions of the crisis through a continuing effort to strengthen the architecture of the international monetary and financial system. The broad aim is for markets to operate with more transparency, equity, and efficiency. The IMF has ...
