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

  • Ali M. Kutan


  • Brasukra G. Sudjana

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.

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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-658.

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Length: 16 pages
Date of creation: 01 Feb 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-658
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  1. Andrew Berg, 1999. "The Asia Crisis: Causes, Policy Responses, and Outcomes," IMF Working Papers 99/138, International Monetary Fund.
  2. 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.
  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. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters? A chronicle of the Asian crisis," Policy Research Working Paper Series 2094, The World Bank.
  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. 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.
  7. Hal Hill, 1999. "Indonesia : The Strange and Sudden Death of a Tiger Economy," UP School of Economics Discussion Papers 199913, University of the Philippines School of Economics.
  8. Bong-Chan Kho & Rene M. Stulz, 1999. "Banks, the IMF, and the Asian Crisis," NBER Working Papers 7361, National Bureau of Economic Research, Inc.
  9. 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.
  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.
  11. Sachs, Jeffrey D., 1998. "Creditor panics: Causes and remedies," Research Notes 98-4, Deutsche Bank Research.
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