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rate of deposit turnove r存款周转率loan-deposit ratio 存放款比率self-owned capital ratio 自有资本比率output-capital ratio 产出与资本的比率ratio of profit to capital收益同资本的比率turnove r of account receiva ble 应收帐款周转率ratio of doubtfu l loans to total loans 坏帐比率fixed assets ratio 固定资产比率fixed assets turnove r ratio 固定资产周转率current ratio 流动比率turnove r ratio of working capital 流动资本周转率liquidi t y of bank 银行资产流动性payment reserve支付准备internal reserves内部准备金graduated reserve require ment 分级法定准备金ratio of cash reserves to deposits 存款支付准备率initial reserve初期准备金offset reserve坏帐准备金allowan ce for doubtfu l debt 备抵呆帐款项reserve require ments法定存款准备金reserve ratio 法定存款准备金比率require d reserve ratio 法定准备率minimum reserve ratio法定最低准备比率additio nal reserve追加准备金guaranteed fund 保证准备金reserve margin准备金比率unbalan ce finance赤字财政red balance赤字差额repressed inflati o n 抑制性通货膨胀shortag e of financi a l resources财源短缺gallopi n g inflati o n 恶性通货膨胀monetar y and financi a l crisis货币金融危机deflati o n 通货紧缩inflati o n 通货膨胀inflati o n rate 通货膨胀率inflati o nary trends通货膨胀趋势monetar y stringe ncy 银根奇紧slack of finance银根松缓stagfla tion 滞胀demand pull inflati o n 需求拉动通货膨胀demand shift inflati o n 需求变动型通货膨胀latent i n flati o n 潜在的通货膨胀inflati o nary spiral螺旋式上升的通货膨胀neutrality of the central bank 中央银行的中立性counter-inflati o n policy反通货膨胀对策open market policy公开市场政策deficit-coverin g finance赤字财政fiscal and monetar y policy财政金融政策harmony of fiscal a nd monetar ypolicie s财政政策和金融政策的协调interes t rate policy利率政策monetar y device金融调节手段monetar y action金融措施measure s for monetar y ease 金融缓和措施easy credit放松信贷monetar y and credit control货币信用管理deficit coverin g弥补赤字restric ti v e lending policy贷款紧缩政策over-loan positio n贷款超额credit expansi o n 信用扩张credit control instrum ent 信用调节手段credit control信用控制restric ti v e monetar y policy紧缩通货膨胀credit extendi n g policy融资方针ultra-cheap money policy超低息政策financial transaction 金融业务moneta r y market 金融市场 financ ial unrest 金融动荡 financ ial crisis 金融危机financ ial system 金融体系 financ ial world金融界policy of discou n t window 窗口指导政策 open market operat i o n 公开市场业务accrue d bond intere s t 应计债券利息 accrue d divide n d 应计股利 active securi t ies 热头股票，活跃的证券baby bond 小额债券bear operat i o n 卖空行为black market 黑市black money 黑钱bond fund 债券基金call for funds 控股、集资 call market 活期存款市场 capita l market 信贷市场、资本市场capita l resour ces 资本来源capita l surplu s 资本盈余capita l transf e r 资本转移capita l turnov e r rate 资本周转率cash audit 现金审核cash basis 现金制cash basis accoun ti n g 现金收付会计制cash budget 现金预算 cash flow资金流动cash holdin gs 库存现金 cash paymen t现金支付cash positi o n 头寸cash resour ces (reserv e s) 现金准备common fund 共同基金common trust fund 共同信托基金 curren t fund 流动基金deposi t turnov e r 存款周转率derive d deposi t 派生存款design a ted curren cy 指定货币discou n t market 贴现市场discou n ted cash flow 净现金量due from other funds 应收其他基金款 due to other funds 应付其他基金款equali z ation fund （外汇）平衡基金farm subsid ies 农产品补贴fund 资金、基金fund accoun t 基金帐户 fund alloca ti o n 基金分配 fund approp ri a tio n 基金拨款 fund balanc e 基金结存款 fund for relief 救济基金 fund for specia l use 专用基金 fund in trust 信托基金 fund liabil i t y 基金负债 fund obliga ti o n基金负担fund raisin g 基金筹措 funds statem e nt 资金表 genera l fund 普通基金gross cash flow 现金总流量 hedge fund 套利基金hoarde d money 储存的货币legal tender 法定货币moneta r y aggreg a tes 货币流通额moneta r y area 货币区moneta r y assets 货币性资产moneta r y base 货币基础moneta r y circul a ti o n 货币流通moneta r y ease 银根松动moneta r y string e ncy 银根紧moneta r y unit 货币单位money collec tor 收款人money credit 货币信用money down 付现款money equiva l e nt 货币等价 money-flow analys i s 货币流量分析near money 准货币neutra l money 中介货币provid ent fund 准备基金public audit 公开审计public money 公款short-term funds 短期资金sinkin g fund 偿债基金 soft curren cy 软币subsid y accoun t 补助金帐户transf e r to reserv e accoun t 转到准备金帐户transf e rable money 可转帐货币 trust bank 信托银行 trust fund信托基金withdr a wal from circul a tion （货币）回笼withdr a wal of bank notes 钞票回笼 withdr a wal of funds 资金回收 banker 's bank中央银行banks with busine ss dealin g with the centra l bank 中央银行的往来银行foreig n banks 外国银行local bank 地方银行overse a s branch es 国外分行foreig n corres p onden t 国外代理银行 nation alized bank 国有化银行 nation al bank 国家银行 bank of the govern ment政府的银行city bank 城市银行 credit union 信用合作社 operat i n g bank营业银行consor ti u m bank 银团银行 ordina r y bank普通银行our bank 开户银行establ i s hing bank 开证银行 interm e diary bank 中间银行certif yi n g bank付款保证银行paying bank 付款银行 appoin ted bank 外汇指定银行 corres p onden t 代理行main bank主要银行remitt i n g bank汇出银行Giro bank汇划银行remitt a nce bank 汇款银行negoti a ting bank 议付银行 issue bank发行银行bank of deposi t 存款银行redisc ount bank 再贴现银行agent for collec ti o n 托收代理银行collec ti n g bank 托收银行mortga g e bank 抵押银行sellin g bank 卖方银行reques ti n g bank 委托开证银行 transm i t ting bank 转证银行 truste e bank 受托银行domesti c corres p onden t 国内通汇银行loan bank放款银行accept i n g bank承兑银行confir mi n g bank 保兑银行 discou n ting bank 贴现银行 credit or bank 债权银行 debtor bank 借方银行advisi n g bank 通知银行accept a nce bank 票据承兑行 cleari n g bank 清算银行 presen ti n g bank 提示银行 affili a ted bank联行long-term credit bank 长期信用银行 specia lized foreig n exchan g e bank外汇专业银行member bank会员银行fringe bank 边缘银行export and import bank 进出口银行managi n g bank of a syndic a te 财团的经理银行 non-member bank非会员银行credit bank 信贷银行 charte r ed bank特许银行specia l bank 特殊银行 side-work bank 兼业银行 overse a s bank海外银行popula ri t y bank 庶民银行 banker 's associ a tion 银行协会infrastructu r e bank 基本建设投资银行reserv i n g bank储备银行saving s bank 储蓄银行 multin a ti o na l bank跨国银行world bank 世界银行Asian Develo p ment Fund (ADB) 亚洲开发银行Euro-bank 欧洲银行 Intern a tiona l Invest m ent Bank (IIB)国际投资银行intere s t subsid y 利息补贴 intere s t restri c ti o n利息限制legal intere s t 法定利息 public deposi t政府存款deriva ti v e deposi t 派生存款 specia l deposi t特种存款reserv e deposi t 准备存款 bank deposi t 银行存款 reserv e accoun t 准备金帐户Bank of Commun i c atio n s 交通银行Develo p ment Bank开发银行the Constr u ction Bank of China 中国建设银行the People 's Bank of China 中国人民银行 Indust ri a l and Commer ci a l Bank of China中国工商银行Agricu l t ural Bank of China 中国农业银行China Invest m ent Bank 中国投资银行 Bank of China中国银行the Intern a tiona l Trust and Invest ment Corpor a ti o n of China (ITICC)中国国际信托投资公司 advice of drawin g 提款通知书 draw提款drawee bank 付款银行drawin g accoun t 提款帐户fixed saving s withdr a wal 定期储蓄提款 run on a bank银行挤兑outwar d remitt a nce汇出汇款postal remitt a n ce 邮政汇款 remitt a nce by draft 汇票汇款 remitt a nce charge s汇费telegr a phic transf e r (T/T) 电汇 collec ti o n of trade charge s 托收货款collec ti o n on clean bill 光票托收collec ti o n on docume n ts跟单托收collec ti n g bank 托收银行 letter transf e r信汇deposi t rate 存款利率extern al accoun t 对外帐户 fixed deposi t (=time deposi t) 定期存款 fixed deposi t by instal l m ent零存整取 impres t bank accoun t 定额银行存款专户large deposi t 大额存款 nomina l deposi t 名义存款non-reside n t accoun t 非居民存款accoun t charge s 账户费用 "accoun t curren t (A/C,a/c)"往来帐户amount i n figure s 小写金额 amount i n words 大写金额applic a tion form for a bankin gaccoun t 银行开户申请书 bank balanc e 存款余额 Certif i c ate of Deposi ts (CDs) 大额定期存款单certif i c ate of balanc e 存款凭单 checki n g accoun t 支票帐户。
发展中国家的金融危机Financial Crisis in Developing Countries【编者按：本文为尤里·达杜什(Uri Dadush)在出席7月2日－4日在北京召开的首届全球智库峰会上所做的发言。
】谢谢对我的邀请，我今天的发言是关于发展中国家的金融危机，只有6分钟，所以我讲得非常简短。
我在世界银行工作多年，会有机会跟踪亚洲金融危机、墨西哥金融危机和其他的金融危机，这是一段非常难忘的时光。
这次金融危机来自发达国家，至于途径我的观点是这样，发展中国家对国际也有一定的责任，这是因为发展中国家发展太快，太成功了，造成世界经济繁荣。
我的观点是发展中国家对金融危机有责任，并不是说他们的储蓄太高，而是因为发展中国家增长太快，他们对全球需求的贡献最大，这是我的解释。
当然，经济增长过快与这些国家经济结构改革有很大的关系，在过去10-15年，这些国家经历了很大的经济调整。
第二，发展中国家虽然没有直接导致金融危机，但是发展中国家对金融危机有间接的影响，有些大，有些小。
美国在经济危机当中受的影响非常大，但是它的影响并不是最大的，很多发展中国家受到的影响更大。
发展中国家受到了很大的影响，因为世界贸易量大大下降，初级产品价格下降了一半甚至三分之二，在石油方面更是如此。
发展中国家得到的资本量也在大幅度下降，根据2009年的预测，下降60%以上。
一般来讲，向发展中国家的资本流动在下降，这对发展中国家的资本市场有很大的影响。
在国际金融中心方面，他们成为一个避风港，包括美国、日本、德国，他们实际上得益于他们作为一个避风港的地位。
这是一个总的状况。
我们在考虑细节的时候，各个国家受影响的差别可以看到发展中国家各不相同。
在拉脱维亚，GDP下降了15%，在中国GDP今年预计下降8%，这是几个发展中国家受影响的程度。
这些差异显示对发展中国家带来的不同的影响，其他发展中国家都处于这之间。
那些受影响最严重的国家有什么特点呢我指出三个特点：一个是金融在全球的程度比较高，但是机构建设不利，包括东欧国家就有这种情况，那里受到严重影响，他们的经常帐户赤字很大，财政赤字非常大，这就使得金融危机的影响会增加，恶化，以及他们的汇率固定，拉脱维亚等其他国家他们这种固定汇率制度也导致国家货币增加。
银行问题与亚洲金融危机胡祖六清华大学中国经济研究中心No.199806 1998年4月银行问题与亚洲金融危机胡祖六一、引言自亚洲金融危机爆发以来，人们目睹了一系列抢占媒体头条新闻的银行倒闭事件。
无论是在泰国、印尼还是在韩国、日本，相当一部分银行正处在摇摇欲坠的状态；银行体系的脆弱性成为了这些国家经济稳定与复苏的主要障碍，是令政府最头疼伤神的一大难题。
其实，银行部门并非只是这场金融灾难的壮丽牺牲品。
人们忽视了银行自身在这场金融风暴中所扮演的重要角色。
具体而言，亚洲金融危机主要表现在货币或汇率危机（currency crisis）和随之而来的外债危机（foreign debt crisis）。
而这两大病症都可追溯于这些国家早已潜伏的银行危机。
突发而激烈的汇市崩溃与短期外债的支付困难终于让世人看到了“藏在衣柜里的骷髅”，把遮掩了多年的银行问题暴露无遗。
突如其来的金融危机的确使许多银行的平衡表恶化了许多，使银行问题变得更加棘手。
但是，如果这些国家原本有健全的国内银行体系的话，那么这场金融危机或许本来就可以避免，至少这场金融危机对经济的破坏性打击将会小得多。
二、亚洲经济过度“银行化”长期以来，由于亚洲人民的节俭传统，时间偏好与忍耐倾向──即为了将来更多的满足而放弃现在的消费，亚洲各国保持了较高的国内储蓄率。
高储蓄使这些亚洲国家能够迅速扩大在物质资本上的投资──包括厂房、机器设备、道路、桥梁与港口等基础设施，为亚洲的经济起飞与长达数十年的繁荣提供了基础。
然而，由于政府在金融政策与金融法规上的偏差，大量民间储蓄以存款形式流入一种特定的金融媒介机构──传统的商业银行，使银行部门的资产负债平衡表急剧膨胀，导致了经济的“过度银行化”。
表1，国内信贷占国内生产总值之比率（1996）资料来源：国际货币基金组织（IMF），高盛投资银行（Goldmam Sachs），作者估计。
如表1所示，东亚国家的银行体系规模相对于国民经济大小显得特别庞大。
Part 31997 Asian Financial CrisisThe countries most affected by the 1997 Asian financial crisis.June 1997, at the outbreak of a financial crisis in Asia, thecrisis can be divided into three stages: from June to December 1997, January to July 1998, July 1998 to the end of the year .BackgroundThe seeds of the 1997-98 Asian financial crisis were sown during the previous decade when these countries were experiencing unprecedented economic growth. Although there were and remain important differences between the individual countries, a number of elements were common too most. Exports had long been the engine of economic growth in these countries. A combination of inexpensive and relatively well educated labor, export oriented economies, falling barriers to international trade, and in some cases such as Malaysia, heavy inward investment by foreign companies, had combined during the previous quarter of a century to transform many Asian states into export powerhouses. The nature of these exports had also shifted in recent years from basic materials andproducts such as textiles to complex and increasingly high technology products, such as automobiles, semi-conductors, and consumer electronics.The Debt Bomb. By early 1997 what was happening in the Korean semi-conductor industry and the Bangkok property market was being played out elsewhere in the region. Massive investments in industrial assets and property had created a situation of excess capacity and plunging prices, while leaving the companies that had made the investments groaning under huge debt burdens that they were now finding difficult to service. To make matters worse, much of the borrowing to fund these investments had been in US dollars, as opposed to local currencies. At the time this had seemed like a smart move. Thus, it often made economic sense to borrowin dollars if the option was available.In this regard, a final complicating factor was that by the mid1990s although exports were still expanding across the region, so were imports. Semi-conductor equipment companies such as Applied Materialsand Lam Materials were boasting about the huge orders they werereceiving from Asia. Motorola, Nokia, and Ericsson were falling over themselves to sell wireless telecommunications equipment to Asian nations. And companies selling electric power generation equipment suchas ABB and General Electric were booking record orders across the region.Progress:Phase I: July 2, 1997, jordan air retro. Thailand announced to abandonthe fixed exchange rate system, floating exchange rate system. Day, the Thai baht U.S. dollar, the exchange rate dropped by 17%, foreignexchange and other financial markets in disarray. Under the influence of fluctuations in the baht, Philippine peso, Indonesian rupiah, Malaysianringgit have become targets of attack by international speculators. In late October, international speculators move to International Financial Centre - Hong Kong, directed at Hong Kong's linked exchange rate system. 28, the Hong Kong Hang Seng Index fell below 9,000-point mark. The face of fierce international financial speculators attacking the Hong Kong SAR Government that it will not change the existing exchange rate system, new jordans, the Hang Seng Index rose again on the 10000-point mark. In mid-November, South Korea also face financial crisis. 17, air jordans, won against the U.S. dollar fell to a record 1008:1; 21, the Korean government to the IMF for assistance, temporary control of the crisis. But by Dec. 13, the won-dollar exchange rate has also dropped to1737.60:1; second half of 1997, as Japanese banks and securities have a series of bankruptcies, a financial crisis swept through Southeast Asia, the evolution of the Asian financial crisis.Phase II: February 11, 1998, the Indonesian rupiah government announced the implementation of a fixed exchange rate with the U.S.dollar linked exchange rate system to stabilize the rupiah. This was the International Monetary Fund is only the United States, Western Europe unanimously opposed. IMF threatened to withdraw aid to Indonesia, Indonesia plunged into political and economic crisis. February 16, with the U.S. dollar, the rupiah fell below 10000:1; affected, Singapore dollar, ringgit, Thai baht, Philippine peso were all down. April 8, Indonesia with the International Monetary Fund on a new economic reform program agreed only Southeast Asian currency markets came to a temporary calm. Closely with the Japanese economy in trouble. Yen exchange rateall the way down, once close to 150 yen to 1 dollar mark. With the sharp depreciation of the yen, the international financial situation is more uncertain, the Asian financial crisis continued to deepen.Phase Ⅲ: early August 1998, international speculators to launch a new round of attacks on Hong Kong. Hang Seng Index fell more than 6600 points, the Hong Kong Monetary Authority Exchange Fund Special Administrative Region to enter the stock and futures markets to attract international speculators selling Hong Kong dollars, the currency stabilized at 7.75 Hong Kong dollars to one U.S. dollar level,jordan shoes, international speculators suffered heavy losses, August 17 Japan, the Russian central bank announced that the U.S. dollar during the floating ruble exchange rate of expansion to 6.0-9.5:1; and postpone repayment of foreign debt and suspension of debt transactions. September 2, 70% devaluation of the ruble, Russia's policy of mutation, so that huge amounts of money in the Russian stock market dropped debilitating international speculators, and led the United States, European countries the stock market and the overall play out fluctuations. The Asian financial crisis has gone beyond the regional scope, has a global significance. The end of 1998, the Russian economy is still not off the hook. In 1999, the financial crisis is over.2008 US subprime mortgage crisisThis global financial situation was triggered by the advent of the subprime mortgage crisis in the United States that became apparent from the mid-2007s. Europe was the next affected, thereafter its contagion spread to the rest of the world. East Asia did not escape. The subprime mortgage crisis in the US is far more complicated than any series of crises in the past.The causes of the U.S. Subprime Mortgage Crisis1.Subprime loan system for product design inherent flaws. Subprime loan products are built on rising house prices and low interest rates based on assumptions. However, if the housing market downturn, rising interest rates, customers will gradually increase the burden, when such a burden to the limit, when a large number of breach of contract customers appeared no longer pay the loan, resulting in bad debts, this time, a crisis arises.2.To deal with excess liquidity, the U.S. Government has always adopted a tight monetary policy. Since June 2004 to June 2006, the Federal Reserve raising interest rates 17 consecutive times, the federal rate raised from 1% to 5.25%, quadrupled and a half, 2004-2006 disbursed for subprime loans from 2007 onwards, 59% of the loan for the month increased by 25% or more, 19% of the loan for month increased by 50% or more. On the other hand, since the two since the fourth quarter of 2006, the U.S. experienced negative growth in real estate prices, decline in value of collateral, repayment pressure increased significantly, thesub-loans to buy a house investors, tend to abandon the property, stop out. Interest rates rise and housing prices decline in red across the subprime mortgage loan market.3. The subject of subprime loans, creating a large number of financial derivatives in the absence of isolation of a mechanism for transmission into the investment market. The real estate credit asset securitization to package them into securities (MBS bonds) to getcapital market flows, and later with the international rating age ncy’s rating requirement to design a variety of derivatives: CDS,CDO and CDO squared, and so on. In fact, the creation of a high degree of syntheticcredit risk products and haven’t been tested in the context of economic globalization, the event of financial crisis, financial crisis would spread rapidly along the financial chain and spread.Disparities in lending and foreclosuresSubprime mortgages have helped expand homeownership for all racial and income levels in the US. Between 1995 and 2006, the homeownership rate increased seven per cent among white households, 13 per cent among African-American households, and 18 per cent among Latino households. In lower-income urban neighborhoods, the rate of homeownership grew six per cent, versus the four per cent growth rate in higher-income suburban areas.Despite recent gains in homeownership rates, minorities are facing foreclosure or losing their houses disproportionately. A 2007 study by the Center for Responsible Lending, a nonprofit homeownership research group, concludes that African-Americans and Latinos are more likely than whites to be steered into high-risk subprime mortgages.This national study, based on information from the US Federal Reserve and replicated by several smaller studies, demonstrates that Blacks are 3.2 times more likely to receive a subprime loan than white borrowers. After adjusting for differences in credit scores, income, and other risk factors between average Black and white borrowers, the study finds that Blacks are still 1.6 times more likely to get a subprime loan than whites when purchasing a home.These findings are not surprising. Minorities in the US have a longhistory of rejection from prime-rate lenders. And American city governments – responsible for most of the natio n’s poor minorities -- have had to acquire expertise in loss-mitigation techniques, alternative mortgage financing, and legal issues related to subprime lending and personal bankruptcy in order to combat mortgage foreclosures.2009 EuropeanPart 51997 AsianThailandFrom 1985 to 1996, Thailand's economy grew at an average of over 9% per year, the highest economic growth rate of any country at the time.On 14 May and 15 May 1997, the Thai baht was hit by massive speculative attacks. On 30 June 1997, Prime Minister Chavalit Yongchaiyudh said that he would not devalue the baht.Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in the countryside and 600,000 foreign workers being sent back to their home countries. Without foreign reserves to support the US-Baht currency peg, the Thai government was eventually forced to float the Baht, on 2 July 1997, allowing the value of the Baht to be set by the currency market. On 11 August 1997, the IMF unveiled a rescue package for Thailand with more than $17 billion, subject to conditions such as passing laws relating to bankruptcy(reorganizing and restructuring) procedures and establishing strong regulation frameworks for banks and other financial institutions. The IMF approved on 20 August 1997, another bailout package of $3.9 billion.IndonesiaUnlike Thailand, Indonesia had low inflation, a trade surplus of more than $900 million, huge foreign exchange reserves of more than $20 billion, and a good banking sector. But a large number of Indonesian corporations had been borrowing in U.S. dollars. During the preceding years, as the rupiah had strengthened respective to the dollar, this practice had worked well for these corporations; their effective levels of debt and financing costs had decreased as the local currency's value rose.In July 1997, when Thailand floated the baht, Indonesia's monetary authorities widened the rupiah currency trading band from 8% to 12%. The rupiah suddenly came under severe attack in August. On 14 August 1997, the managed floating exchange regime was replaced by a free-floating exchange rate arrangement.。
© Blackwell Publishing Ltd 2003© Blackwell Publishing Ltd 2003, 9600 Garsington Road, Oxford, OX4 2DQ, UKand 350 Main Street, Malden, MA 02148, USA 1089Benefits and Costs of InternationalFinancial Integration:Theory and FactsPierre-Richard Agénor1. INTRODUCTIONHE degree of integration of financial markets around the world increased significantly during the late 1980s and 1990s. A key factor underlying this process has been the increased globalisation of investments seeking higher rates of return and the opportunity to diversify risk internationally. At the same time,many countries have encouraged inflows of capital by dismantling restrictions and controls on capital outflows, deregulating domestic financial markets, liberal-ising restrictions on foreign direct investment, and improving their economic environment and prospects through the introduction of market-oriented reforms.Indeed, many developing and transition economies in East Asia, Latin America,and Eastern Europe removed restrictions on international financial transactions,at the same time that they relaxed regulations on the operation of domestic financial markets and moving away from regimes of financial repression.The increase in the degree of integration of world capital markets has been accompanied by a significant rise in private capital flows to developing countries.1As shown in Figure 1, foreign direct investment to developing countries started growing in the 1980s and expanded at an accelerated rate after 1990, whereas PIERRE-RICHARD AGÉNOR is from the World Bank, Washington DC. This paper was prepared for the conference on Financial Globalization: Issues and Challenges for Small States (Saint Kitts,27–28 March, 2001), organised by the World Bank, the Malta Institute for Small States, and the Eastern Caribbean Central Bank. The author is grateful to various colleagues and participants at the conference, as well as an anonymous referee, for helpful discussions and comments. The views expressed in this paper are the author’s own and do not necessarily represent those of the World Bank.1In addition to the growing trend toward integration of world capital markets and changes in policies and prospects in the recipient countries, global cyclical factors (such as the drop in short-term interest rates in industrial countries in the early 1990s) also played an important role in explaining the surge in capital flows. See Agénor (2003, Ch. 7) for a review of the evidence on ‘push’ and ‘pull’ factors in the determination of the surge in capital flows during the 1990s.TFIGURE 1Net Flows of Investment to Developing Countries, 1970–2000 (in billions of US dollars)portfolio flows (which consist of equities, bonds and certificates of deposit) increased until the mid-1990s – reflecting, in effect, the increased incidence of financial volatility and currency crises in the last few years. At the same time, bank-intermediated flows fell significantly in proportion of total flows. Short-term, cross-border capital flows have also become more responsive to changes in relative rates of return, as a result of technological advances and increased link-ages among capital markets.Financial openness is often regarded as providing important potential benefits. Access to world capital markets, as noted earlier, expands investors’ opportuni-ties for portfolio diversification and provides a potential for achieving higher risk-adjusted rates of return. From the point of view of the recipient country, there are potentially large benefits as well. It has been argued that access to world capital markets allows countries to borrow to smooth consumption in the face of adverse shocks, and that the potential growth and welfare gains resulting from such international risk sharing can be large and permanent (Obstfeld, 1994). At the same time, however, it has been recognised that the risk of volatility and abrupt reversals in capital flows in the context of a highly open capital account may represent a significant cost. Concerns associated with such reversals were © Blackwell Publishing Ltd 2003heightened by a series of recent financial crises – including the Mexican peso crisis of December 1994, the Asian crisis of 1997, the Russian crisis of August 1998, the collapse of the Brazilian real in January 1999, the Turkish lira crisis of February 2001, and the Argentine peso crisis of December 2001–January 2002. Although misaligned fundamentals usually played a very important role in all of the above crises (in the form of either overvalued exchange rates, excessive short-term foreign borrowing, or growing fiscal and current account imbalances), they have called attention to the inherent instability of international financial markets and the risks that cross-border financial transactions can pose for coun-tries with relatively fragile financial systems and weak regulatory and supervision structures.In that perspective, a key issue has been to identify the policy prerequisites that may allow countries to exploit the gains, while minimising the risks, associ-ated with financial openness. The purpose of this paper is to provide a selective review of the recent analytical and empirical literature on the benefits and costs of international financial integration, and to identify some key policy lessons for small open economies, particularly those that are pondering their options before embarking in programmes aimed at increasing financial openness.2 It is organised as follows. Section 2 reviews analytical arguments related to the benefits and costs of integration, with particular attention paid to the determinants of capital flows to small countries and the role of foreign bank penetration. Section 3 provides an assessment of the empirical evidence on the benefits and costs of financial integration, highlighting in the process areas in which this evidence appears to lack robustness. Section 4 discusses the role of the Tobin tax as an instrument to mitigate the volatility of speculative, short-term capital movements. Section 5 concludes and draws together some of the policy implications of the analysis.2. BENEFITS AND COSTS OF INTERNATIONAL FINANCIALINTEGRATION: THEORYThe benefits and costs of financial integration can be viewed either from the point of view of individual investors (such as, for instance, the opportunity for international risk diversification, as indicated earlier) or from the point of view of the countries initiating the process of integration. This paper focuses solely on the second perspective, ignoring in the process issues such as the home-bias puzzle in the behaviour of private capital flows (see Obstfeld, 1998; and Stultz, 1999).2See Yusuf (2001) for a recent discussion of other aspects of globalisation, such as trade and international public goods.© Blackwell Publishing Ltd 2003a. Potential BenefitsAnalytical arguments supporting financial openness (or, equivalently, an open capital account) revolve around four main considerations: the benefits of inter-national risk sharing for consumption smoothing; the positive impact of capital flows on domestic investment and growth; enhanced macroeconomic discipline; and increased efficiency, as well as greater stability, of the domestic financial system associated with foreign bank penetration.(i) Consumption smoothingAccess to world capital markets may allow a country to engage in risk sharing and consumption smoothing, by allowing the country to borrow in ‘bad’ times (say, during a recession or a sharp deterioration in the country’s terms of trade) and lend in ‘good’ times (say, in an expansion or following an improvement in the country’s terms of trade). By enabling domestic households to smooth their consumption path over time, capital flows can therefore increase welfare. This ‘counter-cyclical’ role of world capital markets is particularly important if shocks are temporary in nature.(ii) Domestic investment and growthThe ability to draw upon the international pool of resources that financial openness gives access to may also affect domestic investment and growth. In many developing countries, the capacity to save is constrained by a low level of income. As long as the marginal return from investment is at least equal to the cost of (borrowed) capital, net foreign resource inflows can supplement domestic saving, increase levels of physical capital per worker, and help the recipient country raise its rate of economic growth and improve living standards.3 These potential benefits can be particularly large for some types of capital inflows, most notably foreign direct investment (FDI).In addition to this direct effect on growth, FDI may also have significant indirect long-run effects. As emphasised early on by MacDougall (1960), and 3In general, foreign resource inflows can be viewed as an income transfer that can be either consumed or invested. In Obstfeld’s (1999) model, for instance, a foreign resource inflow is no different from any other increase in income. Unless the rate of intertemporal substitution is very high, the representative agent will respond to a permanent resource inflow with an increase in consumption. Because the inflow affects income as well as consumption, saving may rise or fall. If the resource transfer is temporary or takes the form of a loan that must be repaid, the consumption effect is somewhat damped, but it is still likely to exceed the effect on investment. Thus, resource inflows may raise utility by allowing households to smooth consumption rather than by leading to a rise in investment and growth. However, it should be noted that utility-based models of this type may be deficient in some important ways. In particular, the assumption of a single representative agent assumes a degree of capital market development – equalisation of lending and borrowing rates – that does not exist in most developing countries.© Blackwell Publishing Ltd 2003© Blackwell Publishing Ltd 2003more recently by Berthélemy and Démurger (2000), Borensztein, De Gregorio and Lee (1998), and Grossman and Helpman (1991), FDI may facilitate the transfer or diffusion of managerial and technological know-how – particularly in the form of new varieties of capital inputs – and improve the skills composition of the labour force as a result of ‘learning by doing’ effects, investment in formal education, and on-the-job training. In addition, as suggested by Markusen and Venables (1999), although the increased degree of competition in the product and factor markets induced by FDI may tend to reduce profits of local firms, spillover effects through linkages to supplier industries may reduce input costs, raise profits and stimulate domestic investment.To highlight the complementarity (through productivity effects) between FDI and skilled human capital in the growth process consider, following Borensztein,De Gregorio and Lee (1998), an economy in which the source of technological progress is an increase in the number of varieties of capital goods available to producers, which consist of local and foreign firms. Suppose also that the economy produces a single final consumption good using the following technology:Y = S αK 1−α,where 0 < α < 1 and S is the economy’s endowment of skilled labour (assumed given) and K is the stock of physical capital, which is itself a composite of a continuum of different varieties of capital goods, each one denoted by x (j ):K x j j N[()],/()=−−Ύ0111ααd with N denoting the total number of varieties. Physical capital accumulation therefore takes place through an increase in the number of varieties of capital goods produced domestically.Suppose that there are two types of firms producing capital goods: foreign firms, which produce n * < N varieties, and domestic firms, which produce the other N −n * varieties. Specialised firms produce each variety j of capital goods and rent it out to producers of final goods at a rate m (j ). The optimal demand for each variety j is thus determined by equating the rental rate and the marginal productivity of j in the production of the final good:m (j ) = (1−α)S αx (j )−α.(1)An increase in the number of varieties of capital goods available to producers is assumed to require the adaptation of technology available in more advanced countries. This adaptation to local needs requires a fixed setup cost, F , which is assumed to depend negatively on the ratio of foreign firms operating domestically© Blackwell Publishing Ltd 2003to the total number of firms, n */N . Thus, F = F (n */N ), with F ′ < 0.4 This assum-ption captures the idea that foreign firms make it easier to adopt the more advanced technology required to produce new varieties of capital, by bringing in the ‘know-ledge’ already available elsewhere.In addition to this fixed cost, once a capital good is introduced, its owner must spend a constant maintenance cost per period of time. This is equivalent to assuming that production of x (j ) involves a constant marginal cost equal to unity and that capital goods depreciate fully. Assuming that the interest rate r that firms face is constant, profits for the producer of a variety j , denoted Π(j ), are given by:Π() [()() ()].j F m j x j x j e s Nrs =−+−−Ύ0d (2)Maximisation of (2) subject to (1) yields the equilibrium level of production of each capital good:x (j ) = S (1−α)2/α,which shows that, given the assumption of symmetry among producers, the level of production of the different varieties of capital is the same.5 Assuming free entry, it can be shown that the zero-profit condition implies thatr = φS /F ,(3)where φ≡α(1−α)(2−α)/α > 0.To close the model requires specifying savings decisions, which determine the process of capital accumulation. Suppose that households face a rate of return also equal to r and that they maximise a standard intertemporal utility function given by the discounted present value of consumption. It can be shown (see, e.g.,Barro and Sala-i-Martin, 1995) that the optimal solution for the rate of growth of consumption, g c , is:g c = (r −ρ)/σ,(4)where ρ is the rate of time preference and 1/σ measures the intertemporal elasti-city of substitution. In a stationary state, the rate of growth of consumption must 4Borensztein, De Gregorio and Lee (1998) also discuss a second possible effect on F , namely, the possibility of a ‘catch-up’ effect in technological progress reflecting the fact that it may be cheaper to imitate products already in existence than to create new ones at the cutting edge of innovation.This notion is implemented in their model by assuming that setup costs depend positively on the number of capital varieties produced domestically, compared to those produced abroad.5Substituting the optimal level of production into equation (1) yields the constant equilibrium rental rate, m (j ) = 1/(1−α), as a markup over maintenance costs.be equal to the rate of growth of output, g. Substituting (3) in (4) yields therefore the economy’s growth rate:g= [φS/F(n*/N)−ρ]/σ.(5) Equation (5) shows that FDI, as measured by the fraction of capital goods produced locally by foreign firms in the total number of these goods, n*/N, has a positive effect on the economy’s long-term growth rate. The reason is that FDI reduces the cost of introducing new varieties of capital, thereby increasing the rate at which these goods are introduced.6Moreover, the effect of FDI on the economy’s growth rate is positively related to the existing stock of skilled labour employed in production – this is the complementarity effect mentioned earlier.Another channel through which international financial integration may affect positively the rate of economic growth is through its effect on total factor produc-tivity. Levine (2000) has argued that, in principle, the liberalisation of interna-tional portfolio capital flows may lead to higher rates of economic growth because it may tend to accelerate the development of domestic equity markets and that, in turn, may lead to increased factor productivity.7(iii) Enhanced macroeconomic disciplineIt has also been argued that by increasing the rewards of good policies and the penalties for bad policies, the free flow of capital across borders may induce countries to follow more disciplined macroeconomic policies and thus reduce the frequency of policy mistakes (Obstfeld, 1998). To the extent that greater policy discipline translates into greater macroeconomic stability, it may also lead to higher rates of economic growth, as emphasised in the recent literature on endog-enous growth. A related argument is that external financial liberalisation can act as a ‘signal’ that a country is willing (or ready to) adopt ‘sound’ macroeconomic policies, for instance by reducing budget deficits and forgoing the use of the inflation tax (Bartolini and Drazen, 1997). From that perspective, an open capital account may also encourage macroeconomic and financial stability, ensuring a more efficient allocation of resources and higher rates of economic growth.(iv) Increased banking system efficiency and financial stabilityAn increasingly common argument in favour of financial openness is that it may increase the depth and breadth of domestic financial markets and lead to an 6In addition to reducing costs associated with innovation activity, FDI can also have a more direct effect on growth – if, for instance, local firms involved in research activities are able to use at least in part the advanced knowledge that foreign firms possess. As discussed by Berthélemy and Démurger (2000), it would then be the number of varieties of capital goods, and not the rate of change of the capital stock, that would affect long-run growth.7A similar effect may be associated with a higher degree of penetration of foreign banks in domestic financial markets, as discussed below.© Blackwell Publishing Ltd 2003increase in the degree of efficiency of the financial intermediation process, by lowering costs and ‘excessive’ profits associated with monopolistic or cartelised markets. In turn, improved efficiency may lead to lower markup rates in banking, a lower cost of investment and higher growth rates (Baldwin and Forslid, 2000).8 More generally, Levine (1996) and Caprio and Honohan (1999) have argued that foreign bank penetration may:•improve the quality and availability of financial services in the domestic market, by increasing the degree of bank competition and enabling the applica-tion of more sophisticated banking techniques and technology (such as more advanced risk management systems), which may improve efficiency by redu-cing the cost of acquiring and processing information on potential borrowers;•serve to stimulate the development of the domestic bank supervisory and legal framework, if the local foreign banks are supervised on a consolidated basis with their parent;•enhance a country’s access to international capital, either directly or indir-ectly through parent banks;•contribute to the stability of the domestic financial system (and reduced volatility in capital flows) if, in periods of financial instability, depositors may shift their funds to foreign institutions that are perceived to be more sound than domestically-owned banks, rather than transferring assets abroad through capital flight.In addition, foreign banks may also contribute to an improvement in the over-all quality of the loan portfolios of domestic banks if they are less susceptible to government pressure to lend to ‘preferred’ borrowers – as may be the case with domestic financial institutions, particularly those in which the state is involved.b. Potential CostsThe experience of the past two decades has led economists and policymakers to recognise that, in addition to the potential benefits just discussed, open financial markets may also generate significant costs. These costs include a high degree of concentration of capital flows and lack of access to financing for small countries, either permanently or when they need it most; an inadequate domestic alloca-tion of these flows, which may hamper their growth effects and exacerbate pre-existing domestic distortions; the loss of macroeconomic stability; pro-cyclical movements in short-term capital flows; a high degree of volatility of capital flows, which relates in part to herding and contagion effects; and risks associated with foreign bank penetration.8Indeed, the need to improve banking sector efficiency in order to reduce the cost of financial intermediation and promote investment is a key policy objective in many developing countries.© Blackwell Publishing Ltd 2003(i) Concentration of capital flows and lack of accessThere is ample historical evidence to suggest that periods of ‘surge’ in cross-border capital flows tend to be highly concentrated to a small number of recipient countries. The dramatic increase in capital inflows in the early 1990s, for in-stance, was directed to only a small number of large, middle-income countries of Latin America and Asia (see Fernandez-Arias and Montiel, 1996). The share of total private capital flows going to low-income countries actually fell during the 1990s (from levels that were already quite low), whereas the share going to the top ten recipients increased significantly (see World Bank, 2001a). Little foreign capital is directed at sub-Saharan African countries, and most of what flows to the region is limited to a few countries (such as Angola, Nigeria and South Africa) with significant natural resources (see Bhattacharya, Montiel and Sharma, 1997; and Basu and Srinivasan, 2002).9 Thus, a number of developing countries (particularly the small ones) may simply be ‘rationed out’ of world capital markets – regardless of how open their capital account is.(ii) Domestic misallocation of capital flowsAlthough the inflows of capital associated with an open capital account may raise domestic investment, their impact on long-run growth may be limited (if not negligible) if such inflows are used to finance speculative or low-quality domes-tic investments – such as investments in the real estate sector. Low-productivity investments in the non-tradables sector may reduce over time the economy’s capacity to export and lead to growing external imbalances.The misallocation of capital inflows may in part be the result of pre-existing distortions in the domestic financial system. In countries with weak banks (that is, banks with low or negative net worth and a low ratio of capital to risk-adjusted assets) and poor supervision of the financial system, the direct or indirect inter-mediation of large amounts of funds by the banking system may exacerbate the moral hazard problems associated with (explicit or implicit) deposit insurance. That is, lenders may engage in riskier and more concentrated (or outright specu-lative) loan operations.An example of how asymmetric information problems can affect the benefits of capital inflows is provided by Razin, Sadka and Yuen (1999), who focus on the impact of FDI flows. They argue that through FDI and the transfer of control that it entails, foreign investors may gain inside information about the pro-ductivity of the firm(s) that they are investing in. This gives them an informa-tional advantage over less informed domestic investors (whose holdings of 9At the same time, however, it should be noted that although many countries received a relatively small fraction of flows in absolute terms, several of them received sizeable inflows in relative terms (that is, adjusting for country size). This was the case for several small countries in Latin America (such as Costa Rica) and sub-Saharan Africa (such as Lesotho and Namibia).© Blackwell Publishing Ltd 2003shares may be insufficient to give them corporate control) – an advantage that they may be tempted to exploit by retaining the high-productivity firms and selling the low-productivity ones to partially-informed domestic savers. This type of adverse selection problem can lead to over-investment by foreign direct investors.(iii) Loss of macroeconomic stabilityThe large capital inflows induced by financial openness can have undesirable macroeconomic effects, including rapid monetary expansion (due to the difficulty and cost of pursuing sterilisation policies), inflationary pressures (resulting from the effect of capital inflows on domestic spending), real exchange rate appreci-ation and widening current account deficits. Under a flexible exchange rate,grow-ing external deficits tend to bring about a currency depreciation, which may eventually lead to a realignment of relative prices and induce self-correcting movements in trade flows. By contrast, under a fixed exchange rate regime, losses in competitiveness and growing external imbalances can erode confidence in the viability and sustainability of the peg, thereby precipitating a currency crisis and increasing financial instability.(iv) Pro-cyclicality of short-term flowsAs noted earlier, small developing economies are often rationed out of world capital markets. Moreover, among those countries with a greater potential to access these markets (such as oil producers), the availability of resources may be asymmetric. These countries may indeed be able to borrow only in ‘good’ times, whereas in ‘bad’ times they tend to face credit constraints. Access may thus be pro-cyclical. Clearly, in such conditions, one of the alleged benefits of accessing world capital markets, the ability to borrow to smooth consumption in the face of temporary adverse shocks, is simply a fiction. Pro-cyclicality may, in fact, have a perverse effect and increase macroeconomic instability: favourable shocks may attract large capital inflows and encourage consumption and spending at levels that are unsustainable in the longer term, forcing countries to over-adjust when an adverse shock hits.There are essentially two reasons that may explain the pro-cyclical behaviour of short-term capital flows. First, economic shocks tend to be larger and more frequent in developing countries, reflecting these countries’ relatively narrow production base and greater dependence on primary commodity exports. A common adverse shock to a group of countries may cause a deterioration in some countries’ creditworthiness, as a result of abrupt changes in risk perception. This can lead borrowers who are only marginally creditworthy to be ‘squeezed out’ of world capital markets. Dadush, Dasgupta and Ratha (2000) found indeed evidence of a non-linear relationship between a measure of creditors’ risk per-ception and economic shocks in developing countries; perceived risk appears © Blackwell Publishing Ltd 2003to increase more during a large adverse shock than it declines during a small adverse or a positive shock. Second, asymmetric information problems may trigger herding behaviour (as further discussed below) because partially-informed investors may rush to withdraw ‘en masse’ their capital in response to an adverse shock whose economic consequences for the country are not fully understood.(v) Herding, contagion and volatility of capital flowsA high degree of financial openness may be conducive to a high degree of volatility in capital movements, a specific manifestation of which being large reversals in short-term flows associated with speculative pressures on the domes-tic currency. The possibility of large reversals of short-term capital flows raises the risk that borrowers may face costly ‘liquidity runs’, as discussed for instance by Chang and Velasco (2000). The higher the level of short-term debt is relative to the borrowing country’s international reserves, the greater the risk of such runs will be. High levels of short-term liabilities intermediated by the financial system also create risks of bank runs and systemic financial crises.In general, the degree of volatility of capital flows is related to both actual and perceived movements in domestic economic fundamentals, as well as external factors, such as movements in world interest rates.10 More generally, the fact that investor sentiment (particularly that of highly leveraged, speculative trading institu-tions, such as hedge funds) is constantly changing in response to new information creates the potential for markets to overshoot on a scale that can generate financial crises with very large economic and social costs. Short-term portfolio flows, in particular, tend to be very sensitive to herding among investors and contagious factors. Although investor herding is seen by some as evidence of irrationality, some recent literature suggests differently. Herding can be a ‘rational’ response in the presence of several effects:•payoff externalities, which are related to the fact that the payoff to an agent (investor) adopting a specific action may be positively related to the number of other agents adopting the same action;•principal-agent considerations, which result from the fact that a portfolio manager, in order to maintain or improve his or her reputation when markets are imperfectly informed, may prefer either to ‘hide in the herd’ to avoid evaluation and criticism, or to ‘ride the herd’ to generate reputational gains;•information cascades, which are due to the fact that (small) agents that are only beginning to invest in a country may find it optimal to ignore their 10Volatility can also be magnified by domestic market distortions. To the extent that private capital flows are channelled to the domestic economy through commercial banks, credit market inefficien-cies can magnify the effect of changes in, say, external interest rates, and lead to fluctuations in domestic output that may have feedback effects on capital flows (see Agénor and Aizenman, 1999).© Blackwell Publishing Ltd 2003。
Financial Crisis and East Asian Development ModelKyung Tae Lee (KIEP)After Asia was struck by a series of foreign currency crises, government officials, academia and international organizations from the West at once spurned their past positive evaluation of Asia’s economic development and denounced the Asian development model. International financial organizations including the IMF and the majority of western economists argued that the root cause of the East Asian currency crises was not temporary shortage of liquidity but fundamental defects in the East Asian economic structure. They also emphasized that the systemic defects were created when market principles failed to operate properly due to excessive intervention and regulation by the Asian governments.Limits of Neoclassical Criticism on East Asia and Potential DangerThe Neoclassical or orthodox school had in the past made generous assessment on Asia’s market-friendly economic development strategy but ever since the currency crises present contrasting evaluation. This contrasting evaluation before and after the crises, however, is logically inconsistent. For Neoclassical school, the market mechanism was the only mechanism assuring ultimate economic efficiency and government intervention would bring about market failure and diminish economic efficiency. However, they failed to understand how or provide an explanation for the fact that both intense government involvement and high economic growth occurred at the same time in Korea, Japan and ASEAN countries. The contradicting arguments before and after the crises by the Neoclassical economists come from their contradicting evaluation of economic fundamentals of the East Asian countries. Why do the Neoclassical single out systemic defects of the East Asian countries as the primary cause of currency crises even though they might have lost the consistency in their line of argument? For that, there are two possible explanations that are, however, logically inconsistent and counterfactual.First, this can be interpreted as an admission by the Neoclassical that their previous evaluation of the East Asian Miracle was erroneous. That is, the East Asian economy was already vulnerable well before the crises, so it was a matter of time for those crises to occur in the region. Nevertheless, the Neoclassical in this case have an additional task of finding a new variable that would better explain the East Asian Miracle. The answerfor this task lies in acknowledging the effectiveness of government intervention. However, the possibility for such acknowledgment is quite low, since it runs counter to the liberalist perspective on economy by the Neoclassical school.The second assumption is siding with Paul Krugman, in saying that the East Asian Miracle is a one-time phenomenon that is not sustainable. Yet this fails to explain why the East Asian countries are recovering from the currency crises much sooner than the world had expected. Krugman and other Neoclassical economists may insist that the East Asian countries are abandoning the past government-led system and adopting a new market-led system. However, it is not convincing that such dramatic economic system turnover consumes only a couple of years to complete.The lack of logical consistency by the Neoclassical before and after the currency crises needs another persuasive explanation in order not to invite any suspicion that the national interests of specific countries were saved at the expense of the East Asian countries.East Asian Development Model and Structural VulnerabilityVarious opinions regarding the causes of East Asian currency crises can be summed to the external shock theory and the internal factor theory. The external shock theory pinpoints international speculative capital and herd behavior of creditors as the causes, but it falls short of clearly explaining why the crisis originating in Thailand hit Korea but missed Singapore or Taiwan.The argument that most harshly reprehends the East Asian countries out of all internal factor arguments is this: The East Asian development model inevitably conceived structural vulnerability—high debt ratio, inadequate corporate governance, adherent relationship between political and corporate circles, “too big to fail” myth and moral hazard—and this structural vulnerability incited the currency crises. This is the so-called original sin hypothesis.Defining the core characteristics of the East Asian model would help close examination of the validity of the original sin hypothesis. Largely those characteristics are macroeconomic and microeconomic. Macroeconomic characteristics include high savings and investment, high level of education, diligent work attitude and export-oriented economic policy. As macroeconomic characteristics of the East Asian model tell, the role of the government in economic growth was limited; the government showed no outstanding characteristic but being faithful to the basic principles of market economy.One of the microeconomic characteristics of the East Asian model is the unique form of relationship between the government and the corporate sector. In other words, East Asian governments did not act as bystanders toward the market, as their Anglo-Saxon counterparts did, nor central planners, as their socialist counterparts did, but had taken a third way. In the East Asian model, the government accommodated the market in terms of function and ran counter to the market in terms of system. The East Asian countries actively fulfilled the resource mobilization function, mediating and supporting function to overcome market failure in the early stage of economic development. Furthermore, sound macroeconomic management and export-oriented policy enabled efficient resource allocation and, even in case of direct government involvement in resource allocation, discouraged serious distortion of resource allocation. All in all, the result is not too alien from what it would have looked like with a mature market; therefore, the government intervention was market-accommodating in terms of function. Nonetheless, East Asian governments needed to systemically acquire authority to control the market in order to effectively carry out such functions. In the area of financial policy, they weakened the authority of the central bank and commercial banks to match currency supply, interest rate and financial fund allocation to the goals they had set. In the area of foreign exchange policy, they induced concentration of scarce foreign reserves on strategic industries through strict foreign exchange control and maintained exchange rates favorable to export. East Asian governments also intervened in market competition system. Placing substantial weight on the effect of economies of scale, they repressed new market entries, regulated import in the name of protective fostering of national industry and restrained inter-firm mergers. Such market system acted for market repression rather than for market development; the government decided who should enter the market and after entry protected entrants from competition both at home and abroad, as well as deciding who should exit the market.Structural Vulnerability and Currency CrisesStructural vulnerability of the crisis-afflicted East Asian countries is, rather than an inevitable outcome of the East Asian model, either a normal phenomenon emerging at a certain stage of generic economic development or a by-product of failed speed control of the switchover process from government-led to market-led economy. If the argument that the East Asian model should be discarded because currency crises erupted in East Asia were to hold true, then the following arguments should also be valid. Capitalism, a U.S. model, should have been done away with after the Great Depression, andScandinavian countries should have turned away from being welfare states after their foreign currency crisis.The structural vulnerability of East Asian economy is a necessary condition for foreign currency crises but not a sufficient condition. That is, for a currency crisis to occur, structural vulnerability has to be present, but that alone does not cause the currency crisis. The U.S. went through massive fiscal deficit and current account deficit and deterioration of manufacturing sector competition during the 1980s. However, with the U.S. dollar being the key currency, it was able to avoid a currency crisis. China and Japan also managed to bypass the last currency crisis in East Asia. Second-guessing any currency crisis and uncovering structural vulnerability is enough to make every economic problem a cause of currency crisis.It is true that structural vulnerability heightens the likelihood of a currency crisis, thus economic reform that would eliminate structural vulnerability should not be denied. What should be kept in mind, however, is the economic costs accompanying the structural reform. It takes more than just policy efforts to resolve the structural vulnerability of developing countries; it takes endogenous development of market system and market function along economic growth, which takes time.Causal Relationship between East Asian Development Model and Currency CrisesThe discussion so far can be encapsulated as following: Structural vulnerability of the East Asian economy exists but there are not enough logical grounds for it to have originated from the East Asian model. Had the issue of government-controlled finance been resolved and had capital market liberalization taken proper steps, the currency crises could have been avoided. Therefore, no clear causal relationship exists between the East Asian model and currency crises.The argument that the East Asian model has delayed the elimination of structural vulnerability, although structural vulnerability found among the East Asian countries is fundamentally manifestation of their backwardness, is worth noting. This delay effect arises from two factors, one the phenomenon of inertia and the other the phenomenon of lack of incentive. The phenomenon of inertia occurs when the achievement of the East Asian model over decades is so great that overconfidence of its effect has led the East Asians to ignore the demand for change. The phenomenon of lack of incentive occurs when, as a result of government-led development over decades in East Asia, the need for developing market principles did not grow. The government assumed the role that should have been played by the market and, the achievement being satisfactory, the EastAsian countries came to believe that they would not run into serious problems even if market principles did not operate properly.In East Asia, government intervention was justified on the ground of market failure. However, the more desirable approach was for the government to create a virtuous cycle of setting market development as an ultimate goal and consistently executing deregulation and system building measures that correspond to the goal and accordingly reducing government involvement by degrees.。
