The Asia Crisis: Causes, Policy Responses, and Outcomes

IMF Working Papers, October 1, 1999

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The Asia Crisis: Causes, Policy Responses, and Outcomes

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Bibliographic details

• Authors: Andrew Berg
• Published: October 1, 1999
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451855968.001

Summary

• This paper tells the story of the Asian financial crisis by addressing four questions: What were the causes of the crisis, how did the crisis unfold, what were the policy responses, and what have been the outcomes?
• The paper takes the view that none of these questions can be understood without appreciating the fundamental vulnerabilities that left authorities without effective tools to counter sudden capital outflows.
• The pattern of output decline suggests that these vulnerabilities, particularly weaknesses in domestic financial systems, played a larger role than tight monetary policy in determining outcomes.

Core findings on causes and vulnerabilities

• Fundamental vulnerabilities undermined authorities’ ability to counter sudden capital outflows.
• Weaknesses in domestic financial systems were highlighted as especially important in shaping outcomes.
• The analysis implies that financial system weaknesses contributed more to output decline than tight monetary policy.

How the crisis unfolded (as characterized in the paper)

• The narrative addresses the sequence of events in the crisis with emphasis on capital outflows and policy constraints.
• The paper links the unfolding crisis to preexisting vulnerabilities in financial institutions and markets.

Policy responses and evaluation

• The paper examines the policy responses deployed by authorities during the crisis.
• It argues that the effectiveness of policy responses was constrained by the underlying vulnerabilities in domestic financial systems.
• The interpretation emphasizes that policy choices must be evaluated in the context of these structural weaknesses.

Outcomes and implications

• Outcomes are evaluated with a focus on output decline and the relative roles of financial-sector vulnerabilities and monetary policy.
• The paper’s perspective assigns greater explanatory weight to domestic financial-system weaknesses than to tight monetary policy in accounting for outcomes.

Subject classification and keywords

• Subject: Banking, Commercial banks, Exchange rates, External debt, Financial crises, Financial institutions, Foreign exchange, Real exchange rates
• Keywords: Asia and Pacific, Asia crisis, balance of payments crises, banking system, Commercial banks, crisis country, currency crises, current account, Exchange rates, financial system, flight to quality, interest rates and exchange rates, nominal interest rate, Real exchange rates, short-term debt, WP

Content in this bundle

• The Asian Crisis: Couses, Policy Responses, and Outcomes - WP/99/138
  • The Asian Crisis: Couses, Policy Responses, and Outcomes - WP/99/138 (Markdown version)
  • The Asian Crisis: Couses, Policy Responses, and Outcomes - WP/99/138 (PDF)