Summary: Mexico's 1994-95 financial crisis has prompted efforts by the Group of Seven countries to improve the ability of the International Monetary Fund (IMF), other official sector organizations, and capital market participants to prevent or respond to sovereign financial crises--situations in which countries have been unable or unwilling to pay their debts and, as a result, have lost access to global capital markets. In this report, GAO identifies factors that may increase or decrease the probability that a future sovereign financial crisis will threaten the stability of the international financial system and identifies the limitations of market and governmental mechanisms for preventing and resolving such crises. GAO also evaluates proposals by the Group of Seven countries and others to better (1) anticipate and avoid sovereign financial crises and (2) resolve these crises when they threaten the international financial system. GAO focuses on proposals that have been implemented or are in the process of being implemented. These proposals include the establishment by IMF of voluntary standards that countries may use when disclosing economic and financial data to the public; an expansion of the General Arrangements to Borrow, which are lines of credit that IMF maintains with the Group of Ten countries; and an expedited IMF decision-making procedure to extend financing in exceptional circumstances to member countries.
