On July 2, 1997 Thailand devalued its currency, in what is now thought of as the opening shot of the Asian financial crisis. According to John Lipsky this crisis "dampened significantly the prospects for global growth while unsettling financial markets." There are two very different schools of thought on the causes of this crisis. The articles below, from the IMF magazine "Finance and Development" highlight one school of thought.
The Asian Crisis Causes and Remedies by Bijan B. Aghevli
The Asian Financial Crisis What Have We Learned? by Timothy Lane
Asia's Crisis: A Market Perspective by John Lipsky
The Asian Crisis: Causes and Cures by the IMF staff
Mitigating the Social Costs of the Asian Crisis by the IMF staff
Comments on the articles
An excellent indicator of the IMF's response to the Asian Crisis can be found in Aghevli's article. I will quote the paragraph in full:
To a large extent, these countries were the victims of their own success. Because of their strong economic performance throughout the early 1990s, the Asian countries were in denial when problems began to surface. Believing they were immune to the type of crisis that erupted in Latin America in the 1980s because they did not have the large fiscal deficits, heavy public debt burdens, rapid monetary expansion, and structural impediments that had made Latin America vulnerable, the Asian countries did not deal in earnest with their emerging problems until too late.
The article also recommends appropriate risk assessment, and does acknowledge that the markets played a role. However, it fails to acknowledge critical elements of the problem and does not recommend some fairly obvious solutions to some of the underlying problems of the IMF's generic solutions. Primarily Aghevli appears interested in laying blame elsewhere.
Lane follows basically the same pattern, though he does ask some harder questions, he responds with some fairly unhelpful answers. For example:
There were also widespread concerns about a credit crunch that adversely affected many potential borrowers, particularly smaller firms. Such concerns point to the urgency of making progress in financial sector restructuring to clear away impediments to efficient credit allocation.Clearly, there is a problem when interest rates jump to 20% (in the case of Korea) or 15% in the case of Thailand. I've also a suspicion those numbers do not completely reflect reality. Regardless, the effect on individuals and small businesses is (or should be) much more the focus of any development organization. Instead the focus is on bank portfolios or "efficient credit allocation".
The overall impression these articles give is of a group of well educated people willfully denying their own culpability. The points they raise are not to be taken lightly - certainly transparency is always an issue in these situations, and clearly there were structural issues within these countries which contributed to the problem. But to ignore, or even worse to deny, the effect of austerity measures and the removal of capital controls is virtually criminal.
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