The Asian Financial Crisis: What Happened, and What Is to Be Done (original) (raw)
Related papers
20 Years after the Asian Financial Crisis
ADB Briefs, 2017
• Twenty years after the Asian financial crisis, Asia stands strong. Yet, Asia should not be complacent, and remain vigilant against a buildup of financial imbalances, ready to act if risks materialize, and proactively address structural weaknesses through broadbased reforms. • Significant challenges remain while new vulnerabilities emerge from the steady rise in dollar-denominated debt, increasing private sector debt, and a pickup in nonperforming loans in some emerging Asian economies. With more pronounced global financial cycles, increasingly interconnected financial institutions and markets are also building the channels to fan global shocks. • Three key lessons are drawn from Asia's crisis experience: (i) maintaining sound macroeconomic fundamentals is a prerequisite for economic and financial resilience; (ii) deepening and broadening financial systems is essential to boost both financial efficiency and resiliency; and (iii) greater regional cooperation efforts are needed to reinforce regional financial safety nets for financial resilience.
Worsening of the Asian Financial Crisis: Who is to Blame
2004
Some observers have argued that the IMF's focus on the institutional weaknesses of the Asian crisis countries that are inherently difficult to remedy and not necessarily relevant for the crisis, and that their inclusion in IMF programs exacerbated the crisis. This paper argues that besides IMF actions, it is important to consider other factors such as governments' own policy actions and the degree of socio-political instability in affected countries to better assess the factors that might have exacerbated the crisis. Using Indonesia as a case study, we show that political turmoil and government policy actions taken independent of IMF programs lowered the dollardenominated stock market returns, while IMF-related news did not have any significant effect the returns. However, the negative impact of independent government policy announcements on investor wealth was larger than that of political instability.
1999
This paper provides an asymmetric information analysis of the recent East Asian crisis. It then outlines several lessons from this crisis. First, there is a strong rationale for an international lender of last resort. Second, without appropriate conditionality for this lending, the moral hazard created by operation of an international lender of last resort can promote financial instability. Third, although capital flows did contribute to the crisis, they are a symptom rather than an underlying cause of the crisis, suggesting exchange controls are unlikely to be a useful strategy to avoid future crises. Fourth, pegged exchange-rate regimes are a dangerous strategy for emerging market countries and make financial crises more likely.
The Global Financial Crisis and Asia: Implications and Challenges
This book aims to identify and analyze the impact of the 2007–2009 global financial crisis on Asian economies and to assess the short-term and longer-term policy responses to the crisis in terms of their effectiveness and sustainability. The volume highlights that Asian economies have recovered strongly from the crisis, reflecting their aggressive moves to ease monetary and fiscal policy. However, the biggest challenge lies ahead. It asserts that, given that it is unlikely that the US and Europe will be engines of global growth, Asian economies should contribute to global economic adjustment by creating their own growth engines.
Asian Crisis and Finance theory
The Asian crisis did not involve generalized financial panic. Stock markets behaved rationally and the crash in exchange rates is explained by the presence of credit risk. The crisis highlights the need for better risk management at the national level focusing less on the size of the external debt and more on its currency and maturity composition. There should be more freedom in capital outflows and less reliance on the banking system. IMF assistance to crisis stricken countries should be in the form of a currency swap which addresses the root cause of the crisis and subjects the IMF itself to financial discipline.
International Finance, 1998
The dramatic nature of the exchange rate collapses in Asia has greatly stimulated efforts to understand and control the forces that cause such crises. While currency crises are not new, those in Asia stand out both because of the severity of the economic dislocations and because they do not seem to fit the standard explanations. The Asian crises lack the clear evidence of distorted domestic macroeconomic conditions that were believed to be key to most past currency crises, yet they are among the most extreme in terms of the magnitude of exchange rate depreciation and output loss. Instead, the Asian vulnerability derived from microeconomic weaknesses in their domestic banking systems and extreme levels of exposure to exchange rate risk by those who borrowed in foreign markets. In this regard, the experience reinforces prior warnings of the dangers of removing controls on international capital flows in the presence of weak, or repressed, financial systems. Second, the Asian crises have promoted an intensified discussion of the appropriate policy response to a crisis, both by the countries involved and by the International Monetary Fund. With capital account convertibility, the potential magnitude of sudden claims on a country's foreign exchange reserves far exceeds the levels observed in earlier currency crises. Under such circumstances, how can countries effectively respond to a run on their currencies, and should the International Monetary Fund step in as a lender-of-last-resort? Can a lender-oflast-resort function be sustained at the international level in the absence of strong prudential supervision of financial institutions and markets without raising intolerable problems of moral hazard?