Lessons Learned, Not Learned or Ignored

The Mexican crisis of 1995 spawned a debate on such issues as moral hazard caused by large bailouts, a lack of candor in IMF analyses, and a lack of transparency and poor data provision by debtor countries, as described in Chapter 1. Ways to reach a comprehensive debt structuring when most of the outstanding debt consisted of bonds rather than bank loans were also discussed. Some improvements were made in candor and transparency, but the really big issues such as moral hazard remained unsolved. Moreover, the Asian crisis erupted not long after things had calmed down in Mexico. And, following the shock of the Russian default in 1998, a wide-ranging debate on the international monetary and financial system developed. The Brazilian rescue of 1999 added to the urgency of the debate. This time a number of lessons were learned, but others were either not learned or ignored because they were too complex to solve or too politically contentious. The G7, still under de facto American leadership, continued to take the main initiatives, but emerging countries gradually raised the level of their voices in the discussions. On the European side, divisions between the main players remained a source of weakness. Common positions were seldom reached, strengthening the position of the United States despite the fact that its voting share in the IMF (17 per cent) was considerably smaller than that of the European Union members together (36 per cent). At the same time, the position of Japan showed a marked shift from habitually falling in line with the US stance to a much more critical tone regarding the IMF. This was mainly due to its judgment that the Fund had treated the Asian countries embroiled in the crisis of 1997–98 too harshly.