Camdessus Address to Finance Ministers Signs That Crisis Is Abating Are Based on Positive Actions of Asian Countries
| Pages | 27-28 |
Page 27
In the past few months, the evidence has been mounting that the worst of Asia's crisis may be past. The cautious optimism at present stems from the actions that are being taken in Asia itself-in several well-known cases with IMF support-and from the measures taken by governments around the world to sustain economic activity and diminish the risk of global recession.
The crises in east Asia were the result of interaction among flawed national financial systems, deficient corporate and public governance, and shortcomings in the global system. As global financial markets developed, especially in the early 1990s, capital was attracted to east Asia, in large part because of its exceptional reputation for growth and macroeconomic management. But the crises exposed serious structural weaknesses in these recipient countries that had been concealed by the magnitude of the flows, inadequate risk assessment by foreign creditors, and some weaknesses in supervisory practices in some creditor countries.
Another key factor was that the pace of de facto liberalization of short-term capital flows exceeded that of longer-term flows, which encouraged domestic banks and corporations to accumulate large amounts of shortterm external borrowing. As a result, the countries became highly vulnerable to sudden shifts in investor sentiment, an important factor in the striking speed and virulence with which the crisis spread through the region and threatened to extend worldwide.
Since the countries faced an immediate liquidity crisis coupled with profound structural problems, the programs had to be comprehensive, embracing both structural and macroeconomic policies.
- Structural reform, particularly in the financial and corporate sectors, assumed a central role.
- Macroeconomic policies were used initially to stabilize the economy and later to support economic recovery. Monetary policy aimed to prevent a spiral of depreciation and inflation; once a measure of stability had returned to exchange markets, interest rates were allowed to decline. Fiscal policy sought to complement monetary policy and to make room in the budget for the costs of bank restructuring.
- Large official financing packages were seen as an...
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