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The Asian Crisis: Lessons For Crisis Management And Prevention

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  • Richard Brealey

Abstract

The succession of financial crises that swept through Asia, Russia, and Latin America in 1997 and 1998 has led to considerable debate about both the role of the IMF and possible actions to limit further crises. Some have argued that international financial markets do not function well and are subject to periodic contagious panics that can be stemmed by an international lender of last resort. This paper argues that the IMF has neither the resources nor the superior information to play such a role. However, there may be a need for an international financial institution that can use its leverage to secure policy changes in the affected countries. The paper also takes issue with the view that the IMF is simply bailing out imprudent international banks and that measures are needed to “bail them back in” again. The source of the Asian crisis lay in the real economy, but the effect of the crisis was greatly exacerbated by the financial structure of the affected countries. In particular, much of the risk was borne by domestic banks that borrowed dollars in the short‐term interbank market and made longerterm loans in the local currency. Public policy needs to be directed to ensuring that the risks in emerging markets are distributed efficiently across both foreign and domestic investors. That involves greater use of equity finance and structured debt, as well as possibly a more direct role for foreign banks in funding local activities.

Suggested Citation

  • Richard Brealey, 1999. "The Asian Crisis: Lessons For Crisis Management And Prevention," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(3), pages 111-124, September.
  • Handle: RePEc:bla:jacrfn:v:12:y:1999:i:3:p:111-124
    DOI: 10.1111/j.1745-6622.1999.tb00036.x
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    1. repec:onb:oenbwp:y::i:48:b:1 is not listed on IDEAS
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    3. David T. Llewellyn, 2002. "An analysis of the causes of recent banking crises," The European Journal of Finance, Taylor & Francis Journals, vol. 8(2), pages 152-175, June.
    4. Thomas S. Coe, 2002. "International Portfolio Diversification: A Comparison of ADRs and Closed-End Country Funds," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 1(1), pages 31-46, May.
    5. Andrew G Haldane & Jorg Scheibe, 2004. "IMF lending and creditor moral hazard," Bank of England working papers 216, Bank of England.
    6. David T. Llewellyn, 2001. "A regulatory regime for financial stability," Working Papers 48, Oesterreichische Nationalbank (Austrian Central Bank).

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