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Past Crisis Experiences and its Lessons for Asia

Past Crisis Experiences and its Lessons for Asia. Pierre L. Siklos Viessmann Centre & BSIA. The Backdrop I. The Asian crisis of 1997-98 continues to leave its mark Most noticeable in the rise of foreign exchange reserves …but impact outside Asia-Pacific region limited. The Backdrop II.

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Past Crisis Experiences and its Lessons for Asia

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  1. Past Crisis Experiences and its Lessons for Asia Pierre L. Siklos Viessmann Centre & BSIA

  2. The Backdrop I • The Asian crisis of 1997-98 continues to leave its mark • Most noticeable in the rise of foreign exchange reserves • …but impact outside Asia-Pacific region limited

  3. The Backdrop II • Financial crises in the US and the € area continue to this day 5 years after it first appeared in the US, 2 years after it erupted in Europe. • Its impact has been global • Raised the question of coupling/de-coupling of business cycles

  4. Real GDP Growth 1997-982009-10

  5. vis-a-vis US

  6. vis-a-vis China

  7. Implications • #1 • Most crises are regional, only a very few are global • Consequence? Policy responses will be different • In Asia, focus has been on protection from ‘foreign’ shocks • In the GFC, focus is on regulation, supervision of financial markets, the role of central banks, and fiscal policy’s impact

  8. Implications • # 2 • Improvements in the ‘delivery’ of monetary policy (viz., central bank transparency) did not prevent the crisis, or spillovers around the world, and is therefore insufficient although these improvements exaggerated • IT economies fare much better

  9. CENTRAL BANK TRANSPARENCY

  10. Implications • # 3 • Common currency ideal in Asia-Pacific very much on the back burner. Unlikely to be taken seriously or contemplated in the near future

  11. Lessons for Asia? • # 1: GFC is yet another failure of international financial institutions (viz., IMF) • This time its not the advice, it’s the capacity , inaction, and inability to apply ‘moral suasion’

  12. Lessons for Asia? • # 2: International policy coordination might help but cannot be left to existing institutions • It needs champion(s). Are there any in Asia?

  13. Lessons for Asia? • # 3: Exchange rate regimes should not be managed (whenever possible) • Creates distortions, complicates necessary policy coordination, delays necessary policy responses, not to mention political problems

  14. Lessons for Asia? • Transparency is a necessary but NOT sufficient conditions in managing crises • There is room for improvement • Sequencing of responses needs to be thought through (e.g., Europe since 2010) • Otherwise, transparency actually can make a bad situation worse

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