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INTRODUCTION
For Thailand, Indonesia, South Korea and Malaysia, the much-celebrated "Asian Economic Miracle" came to an abrupt end in 1997. After three decades of virtually uninterrupted expansion, these countries saw their financial systems collapse, their economies falter and millions of their citizens returned to poverty, all within a few months. The financial crisis spread quickly to the Philippines and Hong Kong, and then to Brazil and Russia. That it did not spread further was due as much to good luck as to good planning.
Every country's financial angst has its own origins and remedies. Earlier crises had often originated in the fiscal exuberance of developing country leaders. The International Monetary Fund (IMF) would then be called in and would "consult" with the errant officials. On the basis of assurances that they would rein in the government's budget, restore confidence in the banking sector and maintain reasonable price stability, the country would be offered financial assistance from one or another of the Fund's special facilities. While there is some debate over the general effectiveness of IMF policies, particularly their long-run impact, the Asian crisis presented a very different set of conditions to the Fund. It was triggered not by financial excesses of governments but by those of the private sector. It reflected, moreover, a set of new and more complex factors stemming from the globalizing of financial markets that made the crisis both more opaque and contagious. The Asian situation thus required remedies different from those that had been tried in the past.
This paper discusses the major causes of the Asian crisis and comments on the scope and timing of the IMF's response. It then considers, in light of the IMF's Asian experience and given the fact that globally-integrated financial markets daily move amounts greater than most countries' annual GDPs, alternative proposals for ensuring that local financial pressures do not escalate into major crises.
PERSPECTIVE
It is useful to start by recalling the origins of today's international financial system. In June 1944, even before WWII had ended, the United States and Great Britain convened a group of economists and financial experts from forty-four nations at Bretton Woods, New Hampshire to design the financial/economic architecture for the postWar world. Their goal was to put the...