Some Implications of the Asian Economic Crisis for the Non-Asian World

The likely effects of the events in South East Asia were from the start seen as difficult to predict. It was even said that observers could be divided into two classes: ‘those that knew that they didn’t know and those that did not know that they didn’t know’ what the effects would be. Clearly, judgments about the effects on the rest of the world stand to be modified progressively over the course of time; and the effects will depend to a great extent on the period over which the effects are being assessed. Moreover, as time passes, other events will occur that will obscure the effects of the events in South East Asia. Quantitative assessments of the effects that were expected to be felt during 1998 were made by international bodies such as the IMF and the OECD, as well as by many other observers. That by the OECD in December 1997 expected growth in the OECD as a whole to be reduced by nearly 1 per cent, and that of Japan by 1.4 per cent. In what follows, attention will be focused on outlining the main channels through which the effects on the rest of the world will make themselves felt. There will then be some discussion of the policy reactions in the rest of the world that have been observed, or which are likely to occur. Finally, there will be some discussion of the need for institutional reform to minimize the risk of similar problems arising for the world economy in future.