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Home > Debates Last Updated: 14:30 03/09/2007
Online Debate

What Caused the Asian Crisis and How to Prevent Its Recurrence


Preliminary discussion by Toshihiko KINOSHITA (Waseda University) and Takahiro MIYAO (GLOCOM, International Univ. of Japan).

The full debate on May 24 was conducted based on this preliminary discussion, also responding to public comments and observations.

Preliminary Round of Discussion on May 22:


MIYAO:
Professor Kinoshita, what do you think is the main cause for the latest Asian crisis? Do you think that domestic policy mistakes and/or domestic structural problems are the real cause for the crisis in such Asian countries as Thailand, Indonesia and Korea? Or would you rather take the position that aggressive investors or irrational speculators in the global financial market have caused the crisis in Asia?

KINOSHITA:
I consider that largely domestic policy mistakes made by policy-makers in such countries as Thailand and Indonesia invited the crisis, although irrational investors and speculators may have ignited the fire later. For example, Taiwan has not been "contaminated" by the crisis, as Taiwan has enough foreign reserves to protect from being attacked. Japan may be seen as a country not having been beaten by irrational speculators because of its huge capital account surplus and abundant foreign reserves, although it has some structural problems. And we have had a lesson that it is not clever to link a nation's currency to a single currency, i.e., the U.S. dollar. For example, Thailand and Indonesia made a mistake in virtually linking their currencies to the U.S. dollar.


MIYAO:
How do you think we can prevent the Asian crisis from happening again? Should we emphasize policy reform and structural reform in domestic economy and society or should we focus on regulation on the financial market to avoid the recurrence of the crisis?

KINOSHITA:
We need both. Unless Asian nations can manage macroeconomic and exchange rate policies, and also reform their banking systems properly, a similar crisis may well happen again sometime in the future. At the same time, the international monetary system should be reformed so that the chance of another financial crisis will be minimized. It may include the reform of IMF and the disclosure of basic information on international monetary movements made by institutional financial institutions, even covering speculative hedge funds.

MIYAO:
What kind of role regional cooperation can play in revitalizing Asian economies? Should we take a regional viewpoint for economic and financial cooperation such as creation of the "Asian Monetary Fund (AMF)," or rather an international approach such as stronger support for IMF?

KINOSHITA:
Various kinds of cooperation are possible. To make a bigger market by opening intra-regional trade is one thing. To widen the scope of swapping agreements to increase liquidity in emergency is another thing. It may include the creation of "AMF," if member countries wish to have such a vehicle in addition to the existing ones. A strong call for the IMF reform may well be made by Asian nations. For the future, how to use IT for widening trade and non-trade transactions among members might well be probed.

MIYAO:
Are you optimistic or pessimistic about the future of Asia?

KINOSHITA:
Basically, I can be optimistic about Asian economies. It is clear that the financial crisis in the past few years emerged because international investors and multinationals lent and invested excessively and Asian entrepreneours received them without appropriate care. It may be regarded as a market failure, but they did not lend or invest excessively in such regions as Africa or Central America. Now all parties concerned in Asia must have recognized the reasons for the failures. Then they can surely correct their mistakes to lead to full economic recovery. In fact, the basic economic conditions of those countries are still valid, namely, a relatively high savings rate, good work ethics, a relatively improved primary/secondary educational system. Besides, their weakened exchange rates right now have strengthened their international competitiveness, leading to a large increase in their exports.


MIYAO:
You say "you can be optimistic," but are you really optimistic without reservation?

KINOSHITA:
In fact I have a few reservations, aside from the bust of the inflated US economy and the possible devaluation of the Chinese currency, which might have a major negative impact not only on Asia but on the global economy. First, Indonesia's situation is very serious. To avoid a further deterioration of the socio-political condition of Indonesia, various kinds of international cooperation will be required in addition to strong political leadership. Second, financial reform is yet to take place. Such reform is especially needed in Thailand and Indonesia. Third, the digital divide issue should be addressed. The question is how to narrow the gap between "North" and "South" in Asia regarding the ability to make use of IT for their economic recovery and future prosperity.

MIYAO:
Professor Kinoshita, thank you very much for your very insightful and informative opinions on the Asian crisis and its recovery. We will pause here and wait to receive questions and comments from the audience until Wednesday morning, and then we will resume our discussion, to be joined by Professor Shiraishi, and respond to those questions and comments on our online debate from 9am to 11am.

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