What kind of lessons can we draw from recent international financial crises in Asia and in Latin America ?

Résumé du document

It was nearly a decade ago that is probably sometime in July 1997, that the financial markets found themselves in a mess. It was understood that the consequence was the aftermath of two major crises. The baht (Thai currency) collapsed, and in its wake, the Indonesian rupiah, the Malaysian ringitt and the Philippine peso fell. The Asian economic turmoil afterwards spread across Russia and Latin America in less than a year. Those Asian and Latin American crises, as well as the sub prime crisis in the US, have shown that regional crisis can have tremendous consequences, at a global scale. This is mainly because of the growing interdependence, interpenetration of the financial markets. In other words, the whole financial structure can be shaken by a local or a domestic crisis. We can legitimately ask ourselves how a regional crisis can prevailingly affect the rest of the world. Are these factors responsible for the Asian crisis or at least for its expansion or still better its diversification? Were the crises properly managed by the public actors and the international community at large? How could the crisis have been contained? And finally, to what extent can the lessons of those crises lead our action towards the current crisis? These buzzing questions and many more thoughts will be answered and highlighted in this report.

Extraits

[...] What kind of lessons can we draw from recent international financial crises in Asia and in Latin America ? What kind of lessons can we draw from recent international financial crises in Asia and in Latin America ? Introduction A mere decade ago, in July 1997, two major crises shook the financial markets. The baht (Thaï currency) collapsed, and in his wake, the Indonesian rupiah, the Malaysian ringitt and the Philippine peso. The Asian economic turmoil afterwards spreads to Russia and Latin America in less than a year. [...]

[...] The IMF is usually seen as responsible for the panic movement because its recommendations undermined the confidence of investors and paved the the way to a money devaluation : credit collapse and panic. Foreign investors have withwrew their capitals because they were afraid of insolvability of banks The inadequacy of the IMF therapy in Argentina On March 10th the IMF announced a $ 7.2 billion financial aid on three years. This aid is part of a $40 billion multilateral assistance (Inter-American development Bank, World Bank, Spain and private actors) is planned in order to help Argentina. [...]

[...] For instance, public interventions were not efficient in the sense that statism was probably too pregnant : banks took many risks since they knew the were backed by the government Butterfly effect : the Asian crisis spreads to Latin America Crisis Brazil devalues its currency to stem the crisis. Argentine exports, mostly traded with Brazil, are fiercely affected by the devaluation (domino effect). The new President Fernando de la Rua asks for the IMF assistance in december 1999. The overvaluation of the peso and debt increase In 1991, the Minister of Finance Cavallo promoted a fixed exchange rate, which first generated inflation. The trade balance became negative and debt increased. [...]

[...] It is therefore important to strenghthen and deepen the international financial cooperation. The G8 must encourage the FMI to become a lender in last resort and impose prudence to the financial institutions. Conclusion Asian crisis had not been forseen. Its roots may be in the Asian model itself and in the disrupture between the market and the State. If those structural reasons may have triggered the crisis, they cannot explain its wide spread. Does the crisis reflect the powerlessness or the insufficiency of the political actors ? [...]

[...] We can draw two major lessons of the Asian and Latin American crises. First, liberalization of capital markets can be hazardours in developing countries since they usually do not have a strong regulation frame. Then, because of the growing interpenetration of the financial markets, we need a credible international financial institution to ensure global stability. The IMF lacks credibility since its failure to address the crisis in 1997. The Asian crisis is therefore both a crisis of public intervention and crisis of international cooperation. [...]