We, economists, must derive lessons from history. What are the lessons of the Asian financial crisis and its contagion for the future crises? I am expecting the different type of crises in the future. Economists of academics, international organizations like IMF, and research institutions are capable to understand and analyze the past experiences. But they have made mistakes. Managing Director of the IMF called the Asian financial crisis in the late 1990s a “21st century type crisis.” But IMF conditionality for Thailand was based on the old-fashioned Washington Consensus. Economists should be flexible for the future crises.
This paper focuses on the regional monetary cooperation in East Asia for both management and prevention of currency crisis to investigate how the regional monetary cooperation has been developing since the Asian Currency Crisis in 1997 and what kind of problems are left for East Asian countries. It is pointed out that the Chiang Mai Initiative has not yet enough effective functions of the surveillance process for currency crisis prevention. Surveillance over exchange rates is necessary in order that the Chiang Mai Initiative should be more effective for currency crisis prevention. A regional currency unit is explained for the effective surveillance.
We review the existing studies that examined how the Asian Financial Crisis in 1997 affected household poverty. While the poor in rural areas are insulated from the shocks created by the crisis, their risk coping abilities are limited. On the other hand, the rich in urban areas are affected by the crisis but they can diversify the negative impact using a wide variety of risk coping devices. Hence, overall impacts of the currency crisis on poverty are not necessary clear because such impacts depend on the relative magnitudes of the shocks from the crisis and the effectiveness of risk coping.
This paper employs a model to explain how short-term foreign capital flows caused the Asian currency crises of 1997 to develop rapidly into severe banking crises in several countries. During the Asian Crisis, the common pattern in different countries was that the outflow of foreign-currency denominated deposits coincided with a sharp depreciation of the domestic currency. Huge payouts for withdrawn foreign deposits soon produced a liquidity crisis for the banking sector. The model presented in this paper shows that if banks experience a sharp increase in short-term, foreign-currency denominated debt, then both the financial system and the value of the domestic currency become extremely fragile.