IDEAS home Printed from https://ideas.repec.org/p/vua/wpaper/1994-56.html
   My bibliography  Save this paper

Financial liberalization and financial fragility : the experiences of Chile and Indonesia compared

Author

Listed:
  • Visser, Hans

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Herpt, Ingmar van

Abstract

The far-reaching liberalization process introduced in Chile after the overthrow of the Allende regime first met with reasonable success, but in the early 1980s a foreign-exchange crisis and a banking crisis appeared to mark the end of the experiment. Liberalization was resumed in 1985 and has not been plagued by serious crises since. The root of the problem seems to have been an exchange rate policy which had to be abandoned, but not before it had led economic actors to make the wrong decisions. The lack of prudential supervision of the financial system did the rest. So far, Indonesia has been following much more cautious exchange rate policies in its liberalization drive. Crises on the scale experienced by Chile are not very likely to occur. The lessons provided by the lack of prudential supervision in Chile do not, however, seem to have been taken to heart, or not sufficiently. Even if the Indonesian banks are unlikely to suffer as much as their Chilean opposite numbers from foreign exchange risks, bad loans, in particular resulting from intra-conglomerate lending, are an increasingly serious prohlem. In dealing with troubled banks the Indonesian authorities have not repeated the mistake of the Chileans to provide a full deposit guarantee. Nonetheless, excellent though the banking rules may look on paper, the implementation leaves much to be desired and Indonesia probably has not yet seen the end of its banking troubles. Apparently, market imperfections are such that effective prudential supervision cannot be dispensed with. Also, it appears that low capital-asset ratios in both banks and their clients, as in Chile in the mid-1970s, call for a cautious course in liberalization.

Suggested Citation

  • Visser, Hans & Herpt, Ingmar van, 1994. "Financial liberalization and financial fragility : the experiences of Chile and Indonesia compared," Serie Research Memoranda 0056, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    • Handle: RePEc:vua:wpaper:1994-56
    as

    Download full text from publisher

    File URL: http://degree.ubvu.vu.nl/repec/vua/wpaper/pdf/19940056.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sebastian Edwards, 1990. "The Sequencing of Economic Reform: Analytical Issues and Lessons from Latin American Experiences," The World Economy, Wiley Blackwell, vol. 13(1), pages 1-14, March.
    2. Caprio Jr, Gerard & Atiyas, Izak & Hanson, James, 1993. "Financial reform lessons and strategies," Policy Research Working Paper Series 1107, The World Bank.
    3. Thomas J. Trebat, 1991. "The Banking System Crisis In Latin America," Contemporary Economic Policy, Western Economic Association International, vol. 9(1), pages 54-66, January.
    4. Kiguel, Miguel A. & Liviatan, Nissan, 1994. "Exchange-rate-based stabilization in Argentina and Chile : a fresh look," Policy Research Working Paper Series 1318, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Willem Naude, 1995. "Financial liberalisation and interest rate risk management in Sub-Saharan Africa," Economics Series Working Papers WPS/1996-12, University of Oxford, Department of Economics.
    2. Baumann, Renato, 2001. "Brazil in the 1990s: an economy in transition," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    3. Sebastian Edwards, 2018. "Keynes on the Sequencing of Economic Policy: Recovery and Reform in 1933," NBER Working Papers 24367, National Bureau of Economic Research, Inc.
    4. Patricia Fernández-Kelly & Douglas S. Massey, 2007. "Borders for Whom? The Role of NAFTA in Mexico-U.S. Migration," The ANNALS of the American Academy of Political and Social Science, , vol. 610(1), pages 98-118, March.
    5. Mr. Jens R Clausen & Ms. Sharmini Coorey & Bakar Ould-Abdallah & Ms. Sònia Muñoz & Mr. Norbert Funke, 2007. "Lessons From High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe," IMF Working Papers 2007/099, International Monetary Fund.
    6. Timothy Kehoe & Sewon Hur & Kim Ruhl & Jose Asturias, 2015. "The Interaction of Entry Barriers and Financial Frictions in Growth," 2015 Meeting Papers 792, Society for Economic Dynamics.
    7. Joscha Beckmann & Robert L. Czudaj, 2023. "The role of expectations for currency crisis dynamics—The case of the Turkish lira," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(3), pages 625-642, April.
    8. Martin, Frederic & Lariviere, Sylvain & Staatz, John M., 1995. "Success Stories of Adjustment: Results and Lessons from Africa and Latin America," 1994 Conference, August 22-29, 1994, Harare, Zimbabwe 183385, International Association of Agricultural Economists.
    9. Gern, Klaus-Jürgen & Gottschalk, Jan & Scheide, Joachim & Schlie, Markus & Strauß, Hubert, 1998. "Leicht gedämpfter Aufschwung in der Weltwirtschaft," Open Access Publications from Kiel Institute for the World Economy 1759, Kiel Institute for the World Economy (IfW Kiel).
    10. Cavallo, Alberto F. & Cavallo, Eduardo A., 2010. "Are crises good for long-term growth? The role of political institutions," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 838-857, September.
    11. Isard, Peter & Mathieson, Donald J. & Rojas-Suarez, Liliana, 1996. "A framework for the analysis of financial reforms and the cost of official safety nets," Journal of Development Economics, Elsevier, vol. 50(1), pages 25-79, June.
    12. Edwards, Sebastian, 2009. "Sequencing of reforms, financial globalization, and macroeconomic vulnerability," Journal of the Japanese and International Economies, Elsevier, vol. 23(2), pages 131-148, June.
    13. Deabes, Tosson, 2005. "The middle way between flexible and fixed exchange rates," MPRA Paper 1992, University Library of Munich, Germany.
    14. Singh, Nirvikar, 2010. "The Dynamics and Status of India’s Economic Reforms," MPRA Paper 24479, University Library of Munich, Germany.
    15. Asturias, Jose & Hur, Sewon & Kehoe, Timothy J. & Ruhl, Kim J., 2016. "The interaction and sequencing of policy reforms," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 45-66.
    16. Francisco D. A. Nadal De Simone, 1995. "A Macroeconomic Perspective Of Afta'S Problems And Prospects," Contemporary Economic Policy, Western Economic Association International, vol. 13(2), pages 49-62, April.
    17. Ball, R., 1999. "The Institutional Foundations of Monetary Commitment: A Comparative Analysis," World Development, Elsevier, vol. 27(10), pages 1821-1842, October.
    18. Molina, Carlos A., 2002. "Predicting bank failures using a hazard model: the Venezuelan banking crisis," Emerging Markets Review, Elsevier, vol. 3(1), pages 31-50, March.
    19. Ram Upendra Das & Meenakshi Rishi, 2010. "Are Trade Openness and Financial Development Complementary?," Trade Working Papers 22790, East Asian Bureau of Economic Research.
    20. Stefanie Kleimeier & Roald Versteeg, 2010. "Project finance as a driver of economic growth in low‐income countries," Review of Financial Economics, John Wiley & Sons, vol. 19(2), pages 49-59, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vua:wpaper:1994-56. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: R. Dam (email available below). General contact details of provider: https://edirc.repec.org/data/fewvunl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.