Macro-economic stability, while necessary is not enough for financial stability, which also requires sound financial sector policies, the IMF said in the latest issue of "Finance and Development" published by it and World Bank jointly.

Inadequate accounting, auditing and disclosure policies in financial and corporate sectors weaken market discipline and countries with these problems run the risk of a crisis if they fully open their currencies," World Bank chief economist Michael Mussa said in an article.

"Countries should liberalise capital account gradually, at the same time as they make progress in eliminating these distortions," he said. "There have been enough cases where financial reform has played a significant role in crises to raise serious questions about whether and under what conditions such liberalisationwill be beneficial rather than harmful," he said.

Mussa also warns that unline foreign direct investment, debt flows are subject to volatility and there should be safeguards against that danger.

Even current account convertibility does not proscribe the imposition of such price-based restrictions as import tariffs and taxes on underlying transactions.

Correspondingly, capital account convertibility means the removal of foreign exchange and other controls but not necessarily all tax-like instruments imposed on the underlying transactions, which need not be viewed as incompatible with the desired goal of capital account liberalisation, he said.

Emphasising the importance of sequencing, Mussa said among problems to be resolved are: inadequate accounting, auditing, and disclosure policies in financial and corporate sectors that weaken market discipline and implicit government guarantees that encourage excessive, unsustainable capital inflows.

Countries in which these problems are severe but suddenly andfully open the capital account run the risk of incurring a severe crisis, he warns. In general, capital account liberalisation and financial liberalisation are inevitable for countries that wish to take advantage of the substantial benefits from participating in the open world economic system in this age of modern information and communication technologies.

However, recent events have demonstrated that there are also dangers and there is no way to completely suppress the dangers but they can be limited considerably.