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Worsening of the Asian Financial Crisis: Who is to Blame?

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  • Ali M. Kutan

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  • Brasukra G. Sudjana

Abstract

Some observers have argued that the IMF???s focus on the institutional weaknesses of the Asian crisis countries that are inherently difficult to remedy and not necessarily relevant for the crisis, and that their inclusion in IMF programs exacerbated the crisis. This paper argues that besides IMF actions, it is important to consider other factors such as governments??? own policy actions and the degree of socio-political instability in affected countries to better assess the factors that might have exacerbated the crisis. Using Indonesia as a case study, we show that political turmoil and government policy actions taken independent of IMF programs lowered the dollardenominated stock market returns, while IMF-related news did not have any significant effect the returns. However, the negative impact of independent government policy announcements on investor wealth was larger than that of political instability.

Suggested Citation

  • Ali M. Kutan & Brasukra G. Sudjana, 2004. "Worsening of the Asian Financial Crisis: Who is to Blame?," William Davidson Institute Working Papers Series 2004-658, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2004-658
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    References listed on IDEAS

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    1. Sachs, Jeffrey D., 1998. "Creditor panics: Causes and remedies," Research Notes 98-4, Deutsche Bank Research.
    2. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August.
    3. Hayo, Bernd & Kutan, Ali M., 2005. "IMF-related news and emerging financial markets," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1126-1142, November.
    4. Dong Lee & Bong-Chan Kho & Rene M. Stulz, 2000. "U.S. Banks, Crises, and Bailouts: From Mexico to LTCM," American Economic Review, American Economic Association, vol. 90(2), pages 28-31, May.
    5. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    6. Michelle Clark Neely, 1999. "Paper tigers? How the Asian economies lost their bite," The Regional Economist, Federal Reserve Bank of St. Louis, issue Jan, pages 4-9.
    7. Geert Bekaert & Campbell R. Harvey (ed.), 2004. "Emerging Markets," Books, Edward Elgar Publishing, number 2836.
    8. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    9. Kho, Bong-Chan & Stulz, Rene M., 2000. "Banks, the IMF, and the Asian crisis," Pacific-Basin Finance Journal, Elsevier, vol. 8(2), pages 177-216, May.
    10. Cerra, Valerie & Saxena, Sweta Chaman, 2002. "Contagion, Monsoons, and Domestic Turmoil in Indonesia's Currency Crisis," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 36-44, February.
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    12. Andrew Berg, 1999. "The Asia Crisis; Causes, Policy Responses, and Outcomes," IMF Working Papers 99/138, International Monetary Fund.
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    Cited by:

    1. Sharon Eicher, 2004. "Is Kazakhstan a Market Economy Yet? Getting warmer???," William Davidson Institute Working Papers Series 2004-673, William Davidson Institute at the University of Michigan.

    More about this item

    Keywords

    Asian crisis; the IMF; Asset Markets;

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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