Asian economic and financial crises: causes, ramifications and lessons

Financial globalisation during the 1990s impinged upon world savings and investment flows, macroeconomic developments, challenges confronting policy makers, international investors and financial market regulators. Experiences of the last two decades reveal that international financial markets are subject to unpredictable swings, costly financial crises and contagions. Examples abound. Abrupt declines in asset prices were notable in the equity market decline of 1987, real estate values plummeted in the late 1980s and early 1990s, and bond markets weakened in 1994. Other examples include the Latin American debt crises of the 1980s, and major bouts of volatility in foreign exchange markets. The latter is demonstrated by the realignments of major currencies in the last quarter of 1985, the speculative attack on the European exchange rate mechanism (ERM) in 1882, the sharp movements in the dollar-yen exchange rate in 1995, and steep exchange rate depreciations and the associated financial collapse of financial systems in the latter half of 1996. This paper focuses on the last event.