A recent trip to East Asia provided me a welcome break from United States headlines of crony capitalism, lack of transparency, collapsing asset values and large current-account deficits. What a difference five years makes. The resilience of the U.S. economy now is being tested as East Asia's was back in July 1997. That crisis tested the International Monetary Fund as never before. The lessons learnt prompted an overhaul of the international financial architecture and many aspects of IMF operations. Reforms are under way in seven key areas.

The flow of short-term foreign capital through economies whose financial structures are ill-equipped to regulate and absorb it can often be devastating. So first, the IMF is now more vocal in pointing out the risks of rapid capital-account liberalization. Recently, we advised Sri Lanka against opening up its capital account until its financial sector was further strengthened.

Second, unlike many previous debt crises, the Asian Crisis was marked by unsustainable private-sector debt that needed messy debt workouts. In future, there must be greater private-sector involvement, or PSI, in the resolution of financial crises. But progress on establishing a PSI framework has been difficult as countries differ in the composition of their private-sector debt and in the laws and customs governing workouts. Nevertheless, the experience from recent PSI cases could yield general principles to guide the process. A framework for the orderly restructuring of unsustainable public debt also is needed. The absence of a mechanism for securing majority action among a diverse set of creditors is currently an important shortcoming. Now being proposed is a dispute-resolution forum, operating independently of the IMF, that would enjoy limited but exclusive powers to carry out an orderly restructuring.

Third, greater private-sector involvement and better mechanisms for debt workouts should lessen the need for bailout packages. We are also working to establish clearly the rules governing access to IMF financing. Because our resources are limited, complementary regional mechanisms such as the Chiang Mai Initiative are useful.

Fourth, the IMF is assisting the efforts of the Bank of International Settlements and groups such as the Financial Stability Forum to revamp banking regulation to keep financial institutions in developed countries from taking undue risks in their lending to developing countries. The IMF has also launched—in collaboration with the World Bank—a thorough health check-up of the financial sectors of our member countries.

The unforeseen speed with which the crisis spread to many countries in the region has suggested a need for the IMF to bolster its surveillance of international capital markets. So fifth, our new quarterly Global Financial Stability Report highlights risks and vulnerabilities in global capital markets. The IMF now also reports on the observance of standards and codes. Another source of contagion during the crisis was a common source of vulnerability—unsustainable exchange-rate pegs. While we cannot provide cookie-cutter advice on the choice of exchange-rate regime, we have been supportive of the decision of many emerging-market countries to move to floating exchange rates in combination with inflation targeting. The move to such regimes should help to reduce the risk of external crises.

Next, the crisis highlighted the weakness of social safety nets in developing countries. Some crisis countries, such as South Korea, were able to address these deficiencies as part of their IMF-supported programmes. Findings of micro studies of how different groups of the population fared during the Asian Crisis have enhanced our ability in future to shield vulnerable segments of the population from the effects of financial crises.

Lastly, the IMF's fiscal-policy advice now is attuned to the need to allow fiscal deficits to expand during crises to buffer the fall in output. We have also been attentive to the criticism that the extensive conditions attached to IMF-supported programmes during the Asian Crisis went beyond countries' abilities to implement them and were often not critical to the resolution of the crisis. Conditionality is being streamlined to have fewer, less intrusive, conditions limited to areas critical to the goals of the programmes.

Interestingly enough, these seven areas where reform has been under way for many years are exactly the ones in which former World Bank chief economist Joseph Stiglitz, in his new book, says reform is needed. Once he's through with his book tour, Stiglitz may want to catch up with news of the reforms actually taking place.