Will Bank Bailouts Bust Budgets? Fiscalization of the East Asian Financial Crisis
East Asia has returned to a position of relative financial stability and modest economic growth seven years since the onset of the East Asian financial crisis, but the long-range impact of the crisis is still unclear, especially regarding potential fiscal ramifications. The pre-crisis and post-crisis fiscal policies and performances of Thailand and Indonesia are examined to assess whether fiscalization of the financial crisis will in turn lead to a fiscal crisis. Thailand and Indonesia were two of the hardest hit economies during the crisis, and each had exemplary fiscal policies before the crisis. Since the crisis, both countries have maintained prudent fiscal policies, keeping budget deficits relatively small, managing debt burdens effectively, and limiting exposure to contingent liabilities. Both Thailand and Indonesia have addressed the short-term triggers of the financial crisis admirably, and continue to monitor vigilantly their external vulnerabilities. Thus, if either country now experiences a fiscal crisis, it will be the result of other factors - bank bailouts will bust budgets only if banks have to be bailed out once again due to incomplete or insufficient financial sector reform.
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