The Asian Financial Crisis and the Architecture of Global Finance

Article excerpt

The Asian Financial Crisis and the Architecture of Global Finance. Edited by Gregory Noble and John Ravenhill. Cambridge: Cambridge University Press, 2000. Pp. 310.

To write another book on the Asian financial crisis is not an easy task for two reasons: first, given the spread of the crisis across countries in a relatively short time, the crisis itself is a complex subject; and second, many books and studies have already focused on the crisis. Anyone attempting to write another volume on it will find it difficult to give a different explanation and to provide different results.

Despite this fact, The Asian Financial Crisis and the Architecture of Global Finance examines both the political and economic aspects of the event extensively. It intends to answer the questions: What went wrong? And what can be done to prevent similar problems from arising in the future? It analyses both the crisis, and the architecture of global finance and the relationship between the two. It is a very well-researched book with papers from the leading scholars on the issue, including Barry Eichengreen and Stephen Grenville.

The book comprises three broad topics. It begins with an introduction of the evolving debate on the causes and consequences of the crisis. Next, the strong comparative perspective of the book offers insights into why some economies in Asia were affected more severely than others. The book also looks at the roles played by the regional giants in contributing to the crisis and how they can possibly help in its resolution in future. In the final section, the book seeks to provide an understanding of the key issues that should be kept in mind in reforming and globalizing financial systems. It also explores various policy proposals for the development of an institutional framework.

The Asian financial crisis (1997-98) was an unconventional crisis - a capital account crisis characterized by massive capital inflows that surpassed current account deficits. In reviewing the causes and consequences of the Asian crisis, Noble and Ravenhill (Chapter 1) discuss factors that had changed, and thus made some economies in the region more vulnerable to financial crisis. Stephen Grenville (Chapter 2) focuses on the issue of international capital flows and crisis. The authors in the first two chapters indicate that the Asian crisis occurred after a huge upsurge in the mobility of international capital; and yet, the liberalization of capital accounts took place in countries with little political capacity to implement effective systems of prudential regulation. They also argue that if those countries had attempted to isolate their economies from international capital markets, it would have been costly in terms of forgone growth. They criticize Asian economies for exhibiting limited financial restructuring and regulatory reform and the fact that leading financial nations and institutions have not been strongly pressured to promote fundamental change in the global financial architecture.

The second part of the book is devoted to the comparison of economies in the region, both those that were crisis hit and those less affected economies. The affected economies in Asia displayed few of the classic warning signs that had preceded financial crises in the past. …