Publication: Crisis and Contagion in East Asia : Nine Lessons
Date
2001-06
ISSN
Published
2001-06
Author(s)
Abstract
The authors investigate the origins of
the East Asian crisis and its contagion, examine the
channels of contagion, and discuss policy
recommendationsThey make detailed recommendations in the
context of nine general lessons learned from the East Asian
crisis. 1) Preventing crises and contagion: avoid large
current account deficits financed through short-term private
capital inflows. Aggressively regulate and supervise
financial systems to ensure that banks and nonbank financial
institutions manage risks prudently. Put in place incentives
for sound corporate finance to prevent high leverage ratios
and overreliance on foreign borrowing. 2) Managing crises
and contagion: In the context of sound policies, mobilize
timely external liquidity of sufficient magnitude to restore
market confidence. At times of crisis, "bail in"
private foreign creditors. When official resources are too
limited for the magnitude of the crisis or contagion, and
when private creditors are not amenable to coordination,
some involuntary private involvement may be needed too. Keep
in mind that there is no one-size-fits-all monetary and
fiscal stance for responding to crises and contagion. 3)
Resolving the systemic consequences of crises and contagion.
Move swiftly to establish domestic and international
mechanisms for dealing with the assets and liabilities on
nonviolable banks and corporations. Cushion the effects of
crisis on low-income groups through social policies to
ameliorate the inevitable social tensions associated with
adjustment. 4) Developing an effective regional financial
architecture. Improve mechanisms for preventing, managing,
and resolving crises and contagion at the regional level in
ways consistent with improvements in the global financial architecture.
Citation
“Kawai, Masahiro; Newfarmer, Richard; Schmukler, Sergio L.. 2001. Crisis and Contagion in East Asia : Nine Lessons. Policy Research Working Paper;No. 2610. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/19635?locale-attribute=en License: CC BY 3.0 IGO.”
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