As F.
S. Mishkin mentioned in ‘Lessons from theAsian crisis (1999)’, there are several lessons learnt from this Asian
crisis. The first lesson from the crisis is a
reasonable government intervention
can make the
financial system to restore stability:
for emerging market countries,
which requires the international lender of last resort. The second lesson is that the international lender of last resort must develop an appropriate loan condition
to avoid formation
of excessive moral hazard caused by financial instability. In industrialized countries, the central bank
can be through an expansionary monetary or the lender of last resort can
restart whole financial system to recovery. Because the institution features of
the financial system in emerging market make the central banks lack of this
ability in these countries. In this
case, an international lender of last resort highly recommended to involve in coping
with the financial crisis in these countries.
International Monetary Fund (IMF), the financial fire-fighter of the world, played the part of international lender of last resort in this crisis. Austerity policy that IMF used only protected the safety of repaying loans, but the recession has aggravated in these countries. The natural of IMF is essentially just an organization of credit union. It cannot create unlimited number of international reserves. Therefore it cannot provide adequate loans to illiquid countries internationally. Y.C.R.Wong (1999)presented in his paper, IMF was too inefficient to help those countries under that urgent situation, and the bailout IMF offered was “too little, too late”. But he also stated there was no evident shows IMF could have done more and quickly, and that given its own limitations to perform the role of international lender of last resort.
International Monetary Fund (IMF), the financial fire-fighter of the world, played the part of international lender of last resort in this crisis. Austerity policy that IMF used only protected the safety of repaying loans, but the recession has aggravated in these countries. The natural of IMF is essentially just an organization of credit union. It cannot create unlimited number of international reserves. Therefore it cannot provide adequate loans to illiquid countries internationally. Y.C.R.Wong (1999)presented in his paper, IMF was too inefficient to help those countries under that urgent situation, and the bailout IMF offered was “too little, too late”. But he also stated there was no evident shows IMF could have done more and quickly, and that given its own limitations to perform the role of international lender of last resort.
This crisis also exposed
the financial sector was the weakest part in whole Asian economy structure, a
steady financial system is very important to every country! The manufacturing
industry in Japan and South Korea were very good, but they still had to suffer
from the crisis. The reason was they had common characteristics as lack of
capital market efficiency, improper credit decision-making and overspent the
capital on real estate market. Furthermore, their internal risk control was
seriously short and the external regulations were useless. In contrast, Hong
Kong had a relatively stable banking system. This is why they could survive
from this crisis.
The fourth lesson is that
pegged exchange rate system for emerging market countries is very dangerous, it makes the financial crisis are more likely. Countries with sound political and legal
framework are more capable to sustain pegged exchange rate system. As the
international cash flow become more and more important, the currency in America
and Europe are completely fluctuated. Under this circumstance, the
emerging market is more appropriate to adopt a more flexible exchange rate
regime. When a country lack of foreign exchange reserves, it is pointless to
retain pegged exchange rate. That results a rapid increase in foreign exchange
market after Asian financial crisis.
This Asian financial crisis is not only a disaster
in Asia area, but also affected the globe economy. It disclosed a lot of
weakness of Asian economic system, and hopefully we can learn from this crisis
to avoid make same mistakes in the future.
