The Asian Crisis and the Prescriptions by the International Monetary Fund

Asian economies are yet to recover from the Asian crisis ignited by the sharp depreciation of the Thai baht in July 1997. Most of the affected economies either have bottomed out or are bottoming out this year but we need to wait for next year or even later for those economies to come back to a high growth path. In response to the dramatic collapse of the currency and the stock markets in the region due to the abrupt withdrawal of an enormous amount of private capital, the international community swiftly extended a large amount of financial assistance. However, despite such international support, the crisis engulfed many neighboring economies and evolved into a full fledged regional economic crisis that is by far deeper and by far longer than initially anticipated. This crisis is said to have originated not from the traditional type of currency crisis arising from the deterioration in the current account but from a new type of currency crisis, which some people call "a currency crisis of the 21st century ", arising from a sudden reversal of international capital flows. Against this background, it now needs to be answered whether the counter measures adopted under the leadership of the IMF correctly responded to such characteristics of the crisis. The prescription by the IMF centering on the structural reform measures may not have sufficiently addressed the true nature of the crisis, that is, the volatility of international capital flows, which may characterize the globalized financial markets. In the face on the incessant globalization of the world financial markets, the international community has to concentrate their efforts to reform the international financial system so as to bring about more stability in the world financial markets, in general, and to incorporate both preventive measures against re-emergence of crisis and effective counter measures when a crisis re-emerged, in particular. Meantime, the developing economies have to press forward with the strengthening of their domestic financial system and in the case where the maturity of the system is not sufficient they might well be better off by taking a cautious approach to the full integration to the international financial markets via liberalization of their capital account