Book contents
- Frontmatter
- Contents
- Figures and Tables
- Preface
- GLOBALIZATION, POLITICS, AND FINANCIAL TURMOIL
- 1 Introduction
- 2 Bank Regulation in the Debate over Capital Flow Liberalization
- 3 The Signaling Argument
- 4 Incredible Signaling in Democracies: The Cases of Thailand, South Korea, and the Philippines
- 5 Unorthodox Solutions to the Signaling Problem: The Cases of Malaysia and Indonesia
- 6 Orthodox Solutions to the Signaling Problem: The Cases of Singapore and Hong Kong
- 7 Some Concluding Remarks
- Appendix I The World Bank's Evaluation of Bank Regulatory Environments
- Appendix II Verbal Description of the Equilibrium with Two Signalers
- Appendix III Formal Proof of Equilibrium with Two Signalers
- Bibliography
- Interviews by the Author
- Index
- POLITICAL ECONOMY OF INSTITUTIONS AND DECISIONS
1 - Introduction
Published online by Cambridge University Press: 24 July 2009
- Frontmatter
- Contents
- Figures and Tables
- Preface
- GLOBALIZATION, POLITICS, AND FINANCIAL TURMOIL
- 1 Introduction
- 2 Bank Regulation in the Debate over Capital Flow Liberalization
- 3 The Signaling Argument
- 4 Incredible Signaling in Democracies: The Cases of Thailand, South Korea, and the Philippines
- 5 Unorthodox Solutions to the Signaling Problem: The Cases of Malaysia and Indonesia
- 6 Orthodox Solutions to the Signaling Problem: The Cases of Singapore and Hong Kong
- 7 Some Concluding Remarks
- Appendix I The World Bank's Evaluation of Bank Regulatory Environments
- Appendix II Verbal Description of the Equilibrium with Two Signalers
- Appendix III Formal Proof of Equilibrium with Two Signalers
- Bibliography
- Interviews by the Author
- Index
- POLITICAL ECONOMY OF INSTITUTIONS AND DECISIONS
Summary
On July 2, 1997, Rerngchai Marakanond, the governor of the Thai central bank, announced that he did not control sufficient foreign reserves to defend his country's currency from speculative attacks. Whereas Asia had been an exceptionally popular destination for international capital in the mid-1990s, this date marked a decisive turning point in lenders' confidence in the region's economic prospects. International lenders began to shift their funds out of Asia in vast quantities. In countries where there were few rules restricting the movement of capital across borders, the outflow of capital was especially astounding. In the second half of 1997 alone capital outflows from these countries amounted to at least $34 billion. The currencies of many of these countries were subjected to devaluations of 40–80% in a matter of months, precipitating the collapse of several banking sectors and causing economic contractions of up to 15 percent of the gross domestic product.
In accounting for this crisis some scholars have focused on the dangers of allowing the liberal inflow of short-term loans; because such loans can be withdrawn rapidly, heavy exposure to these loans renders economies exceptionally vulnerable to sudden shifts in market sentiments. For these scholars the fundamental lesson to be learned from the Asian crisis is that developing countries should retain controls on international capital flows. However, other scholars have argued that the root causes of the crisis go far deeper.
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- Globalization, Politics, and Financial TurmoilAsia's Banking Crisis, pp. 1 - 19Publisher: Cambridge University PressPrint publication year: 2005