Moral Hazard, the IMF, Mexico and Asia

The 1977 collapse of Asian financial systems is the latest in a series of dramatic financial failures. Each of the troubled Asian countries - - Thailand, Indonesia, Malaysia, Philippines, Korea — has its own story, and none of the stories is identical. But there is a common core: Mistaken public policies encourage large-scale domestic and foreign borrowing; explicit or implicit guarantees make risks appear lower than they are; an unanticipated event suddenly changes reality and perceptions of risk; industrial, commercial and financial failures grow; the International Monetary Fund (IMF), assisted by the U.S. Treasury and others, lends money to prevent some of the failures.