The Asian financial crisis of 1997-98 shook the foundations of the global economy and what began as a localised currency crisis soon engulfed the entire Asian region. This book explores what went wrong and how did the Asian economies long considered 'miracles' respond, among other things. The combined effects of growing unemployment, rising inflation, and the absence of a meaningful social safety-net system, pushed large numbers of displaced workers and their families into poverty. Resolving Thailand's notorious non-performing loans problem will depend on the fortunes of the country's real economy, and on the success of Thai Asset Management Corporation (TAMC). Under International Monetary Fund's (IMF) oversight, the Indonesian government has also taken steps to deal with the massive debt problem. After Indonesian Debt Restructuring Agency's (INDRA) failure, the Indonesian government passed the Company Bankruptcy and Debt Restructuring and/or Rehabilitation Act to facilitate reorganization of illiquid, but financially viable companies. Economic reforms in Korea were started by Kim Dae-Jung. the partial convertibility of the Renminbi (RMB), not being heavy burdened with short-term debt liabilities, and rapid foreign trade explains China's remarkable immunity to the "Asian flu". The proposed sovereign debt restructuring mechanism (SDRM) (modeled on corporate bankruptcy law) would allow countries to seek legal protection from creditors that stand in the way of restructuring, and in exchange debtors would have to negotiate with their creditors in good faith.
. The emergence of ‘stagflation’ (simultaneously risinginflation and unemployment) was considered by many to undermine Keynesian economics, and
anti-Keynesian ideas became much stronger. The so-called ‘age of Keynes’
– the three decades after the Second World War – ended abruptly. For Robert
Lucas and Thomas Sargent, two of its leading critics, the Keynesian era had become an
interesting historical episode when economists had adopted a flawed framework. This shift in
mainstream attitudes towards Keynes, contributed to
excellent public services and high individual standards of living.
Challenges in the 1970s
The 1970s challenged the post-war
consensus. There were a number of reasons for this. The post-war economic
boom came to an end with growing economic difficulties, especially risinginflation and unemployment. Economic decline became more obvious as mining,
shipbuilding, steelmaking, textiles and heavy engineering went into
for local ofﬁcials to force bankers to provide
loans to favored projects.
Predictably, the provincial and local governments’ pursuit of an excessive
expansionary monetary policy not only fueled risinginﬂation (that jumped
to some 37 per cent in 1987–88), but also ofﬁcial corruption and graft. Indeed,
China’s experience questions the conventional view that decentralization
improves efﬁciency, or that delegation of greater autonomy to local authorities or ﬁrm-level management will eradicate the “soft budget constraints.”
In fact, ofﬁcial corruption has reached
Such pressures intensified into the 1970s. Industrial unrest, risinginflation, growing unemployment, and confused policy responses brought down the Conservative administration of 1970–74. 64 The incoming Labour government also had to cope with global economic turbulence, and the persistent mistrust of subsequent Labour administrations (1974–79) on the part of international capital markets resulted in a now infamous International Monetary Fund loan in 1976. 65 These political and economic circumstances provided fertile ground for the
became the first man to resign the office
of the presidency and Gerald R. Ford was thus sworn in as the 38th president
of the US.46 Facing the new president were a multitude of problems including
Nixon’s potential pardon, risinginflation and unemployment, and the continuing problems in Vietnam. Ford’s top priority was hardly, then, the conduct of
US–UK relations.47 In spite of this, the new president was soon confronted with
something approaching a crisis in US–UK relations, because of differences over
the evolving situation in Cyprus.
The Cyprus crisis is important
its underlying economic value – leaving risinginﬂation, trade deﬁcits, and eroding export competitiveness in its wake.
Finally, as Hausmann, Panizza and Stein (1999) have shown, emerging markets in Latin America that have attempted to allow their exchange rates to
ﬂoat have experienced greater interest-rate volatility than ﬁxed-rate regimes.
For this reason, Calvo and Reinhart (2000) argue that ﬂoating exchange
rates can have destabilizing effects on emerging markets.
On the other hand, a ﬁxed exchange-rate regime reduces transaction costs.
As was noted earlier, it
: issues, debates and overview
The combined effects of growing unemployment, risinginﬂation, and the
absence of a meaningful social safety-net system, pushed large numbers of
displaced workers and their families into poverty.
In economic terms, 1997 began on a positive note for the longbeleaguered Russian economy. The gradual decline in inﬂation and successful exchange-rate management were promising signs. Moreover, the stock
market was on the rebound, and output actually rose slightly (by 0.8 per
cent) for the ﬁrst time in over a decade. While the budget deﬁcit