In a complex world economy, adjustment is inevitable. Governments, firms and individuals are constantly adapting to changing conditions, in an attempt to offset disadvantages and improve their position in relation to others. Their strategies are shaped not only by the outcome of competition and negotiation within the international arena itself, but also by the balance of power within their own countries. The changing policy environment in each nation affects the terms on which citizens participate in international markets.

The normal process of economic and political competition is marked by crises which threaten to disrupt national economies and to create severe balance-of-payments problems. In designing policies to deal with these situations, policy makers are influenced not only by immediate pressures of a very practical kind, but also by underlying assumptions concerning how economies function and why crises occur.

One school of thought, often referred to as "liberal", would attribute these crises above all to interference with the free play of market forces. In this view, if governments exercise strict monetary and fiscal discipline and remove all barriers to the operation of a self-regulating market, equilibrium can automatically be restored in world finance and trade.

Others doubt that a fully self-regulating market exists. They stress the importance of government intervention to develop and protect local economies, as well as to regulate cycles of recession and growth. In the world arena, they hold that international institutions are required to regulate global finance and trade and to create the conditions for redistribution from countries with long-term balance-of-payments surpluses to those with serious problems of deficit.

In practice, the institutions and policies which developed following the Second World War to deal with serious balance-of-payments problems grew out of a compromise between these two positions. The fact that the World Bank and the International Monetary Fund (IMF) were established at all (at the Bretton Woods Conference in 1944) reflects recognition by the victorious powers of the importance of institutional co-ordination of the global economy. But international financial organizations, now celebrating their fiftieth anniversary, were never given the authority to regulate surplus as well as deficit countries. Although the subject was broached at Bretton Woods, there was no agreement to redistribute persistent surpluses through adjusting commodity prices which had fallen too low, or to tax the reserves of countries consistently earning more foreign exchange than they spent. International institutions could extend loans to countries experiencing balance-of-payments difficulties, but the ultimate responsibility for finding a way out of crisis rested in the hands of countries themselves.

Over the past half century, developing nations confronting internal economic crisis and balance-of-payments problems have sought solutions through reaching individual agreements with the governments of industrial powers, bankers and others within the international financial community. This has been a pragmatic exercise: Third World governments have used strategic or other arguments as bargaining tools; and industrial countries, bankers and international financial institutions providing resources have insisted on the implementation of certain kinds of policy reform in the deficit country.