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The Crisis and Policy Response

National Economic Recovery Plan
Chapter 1

Contents





Difference from the Latin American Crisis

The East Asian crisis can be distinguished from Brazilís debt crisis in the 1980s and the Mexican crisis of 1994-95 in a number of ways.

  1. The current problems in East Asia are linked to private sector borrowing, especially short-term external borrowing, rather than public sector deficits.

  2. The affected countries faced the problem of the misallocation of investment resources rather than overconsumption, since they have among the highest savings rate in the world.

  3. The central issue was the problem of confidence rather than macroeconomic fundamentals.


The East Asian countries had strong economic fundamentals with low inflation, high savings, and a large skill base. However, the corporate sector became increasingly vulnerable as a result of currency appreciation that eroded competitiveness in the real sectors, while the financial system was heavily exposed to external borrowing, property, and stock and shares.

The financial crisis triggered a loss of confidence in the financial system, which was exacerbated by what was perceived to be the weak supervision of the financial sector, inadequate corporate governance and lack of transparency.



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