Tommaso:
Thanks for your compliments. The SE Asian panic and run on currencies are similar to the US banking panics and runs of 1929-30, when the bank deposit guarantee did not exist. Congress then enacted the Federal Deposit Insurance via FDIC to thwart such problems in future. Unfortunately, there has been no formal international debt guarantee, although (de facto) there is something like the US/IMF/WB/IFC/BOJ kind of informal guarantee that started with the Mexican crisis.
I believe such a guarantee is necessary and useful for the global society, provided all governments act rationally avoiding corruption to force banks lend money to their ("bribing") constituents. The reason for why IMF/US/Japan were much more aggressive to help Mexico, S. Korea and Indonesia than Russia is because rational behavior can be less easily forced on the latter. Incidentally, the ADB and SE Asian nations are calling for formal international debt guarantees through IMF/WB/ADB. I think it is a good idea because the ultimate decimation of SE Asia currencies was quite irrational, triggered by fear rather than economic rationale. True, the higher risk of Korean and Indonesian companies and banks should result in a higher interest rate. But, the currency should not have fallen as much had we had the debt guarantee. In Indonesia, the interest rate is beginning to fall and the currency value is recuperating. In S. Korea also, this will happen soon. Thus, the short-term fear will be replaced by rationality due to the defacto IMF guarantee. [Opportunities for investment in these markets? Maybe, but one should be cautious.]
India also faced such a crisis (which was too small for the world to notice) in 1991-92. But the Indian bureaucratic system was quite robust to take immediate action. India does not permit banks to borrow overseas in behalf of companies and even restricts Indian companies to borrow overseas. Even the Chinese system is quite robust. India and China have strived hard to remain self-sufficient and have local markets that are resilient enough to survive. Indian press had been very critical that the government was not as liberal as SE Asian nations and so has stayed behind the latter in growth. In fact, I had argued in many places including at the Federal Reserve about why India should have a restrictive monetary policy because I was acutely aware of runs and panics in the currecnies. Today, the Indian policy makers must feel vindicated. The Reserve Bank of India has become independent since 1990 (?) of the government by an act of the Parliament and the RBI governors have been more powerful than the government ministers. South Korea is trying to do so now.
Sankar |
