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Reform Of The International Financial System And Institutions In Light Of The Asian Financial Crisis

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  • Yung Chul PARK
  • Yunjong WANG
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    Abstract

    When East Asian countries came under speculative attacks in 1997, some of them were not able to defend themselves, and subsequently had to seek the financial assistance of IMF and accept its stabilization programmes. These crisis-hit countries were criticized for not having restructured their financial, corporate, and public sectors along the lines suggested by the Washington consensus. This failure was singled out as the main cause of the crisis and, understandably, these crisis-hit countries were subject to heavy doses of structural reforms. The East Asian crisis became contagious, even threatening the stability of major international financial centres. The severity and contagiousness of the East Asian crisis underscored the importance of, and renewed interest in, reforming the international financial system. Numerous proposals have been put forward. The G-7-led reform, however, has concentrated its efforts on reforming the financial and corporate sectors of developing economies, while by and large ignoring the problems of the supply side of international finance. As was the case in the Mexican crisis of 1994/95, the appetite for radical reform of the international financial system has receded considerably in the wake of global recovery. The ongoing debate on the future direction of the international financial reform in fact suggests that most of the problems that beset the international financial system are likely to remain unchanged. This pessimistic outlook arouses deep concern in developing countries lest they remain vulnerable to future financial crises, even if they faithfully carry out the kinds of reform recommended by IMF and the World Bank. Given this reality, developing countries may have to develop a defence mechanism of their own by instituting a system of capital control and adopting an exchange rate system that lies somewhere between the two corner solutions.

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    Bibliographic Info

    Paper provided by United Nations Conference on Trade and Development in its series G-24 Discussion Papers with number 12.

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    Date of creation: 2001
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    Handle: RePEc:unc:g24pap:12

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    1. Michael D. Bordo & Bruce Mizrach & Anna J. Schwartz, 1995. "Real Versus Pseudo-International Systemic Risk: Some Lessons from History," NBER Working Papers 5371, National Bureau of Economic Research, Inc.
    2. Ueda, Kazuo, 1998. "The East Asian Economic Crisis: A Japanese Perspective," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 1(2), pages 327-38, December.
    3. Marcus H. Miller & Lei Zhang, 1999. "Sovereign Liquidity Crisis: The Strategic Case for A Payments Standstill," Working Paper Series, Peterson Institute for International Economics WP99-8, Peterson Institute for International Economics.
    4. Rodrik, Dani, 2000. "Institutions For High-Quality Growth: What They Are And How To Acquire Them," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2370, C.E.P.R. Discussion Papers.
    5. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(4), pages 65-84, Fall.
    6. Barry Eichengreen & Ashoka Mody, 2000. "Would Collective Action Clauses Raise Borrowing Costs?," NBER Working Papers 7458, National Bureau of Economic Research, Inc.
    7. Michael P. Dooley, 2000. "Can Output Losses Following International Financial Crises be Avoided?," NBER Working Papers 7531, National Bureau of Economic Research, Inc.
    8. Chang, R. & Velasco, A., 1998. "Financial Fragility and the Exchange Rate Regime," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-05, C.V. Starr Center for Applied Economics, New York University.
    9. Andrew K. Rose, 1999. "Is there a case for an Asian Monetary Fund?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue dec17.
    10. Stiglitz, Joseph E., 2000. "Capital Market Liberalization, Economic Growth, and Instability," World Development, Elsevier, Elsevier, vol. 28(6), pages 1075-1086, June.
    11. Benjamin M. Friedman, 2000. "Debt Restructuring," NBER Working Papers 7722, National Bureau of Economic Research, Inc.
    12. Morris Goldstein, 2000. "Strengthening the International Financial Architecture: Where Do We Stand?," Working Paper Series, Peterson Institute for International Economics WP00-8, Peterson Institute for International Economics.
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