Regulatory And Development Dilemmas In The Post-Crisis Asian Economies

This paper discusses the emerging evidence relating to the origins and aftermath of the 1997 Asian financial crisis and its implications for the regulation of the short-term capital account. First, it suggests that the evidence supports an interpretation of the crisis as arising from the inherent instability of short-term, highly liquid capital markets rather than one which focuses solely on common, fundamental weaknesses in the most affected economies. Second, the paper argues that the balance between the state and international and domestic capital is changing as a result of the crisis and that accelerated liberalization and deregulation further weaken the ability of the nation-state to pursue specific development objectives. Given that the nationstate remains the locus of development efforts, liberalization of capital account transactions poses serious problems for policy-makers, with no clear consensus as to the extent of the costs and benefits of alternative policy options.