Worsening of the Asian Financial Crisis: Who is to Blame?

Some observers have argued that the IMF???s focus on the institutional weaknesses of the Asian crisis countries that are inherently difficult to remedy and not necessarily relevant for the crisis, and that their inclusion in IMF programs exacerbated the crisis. This paper argues that besides IMF actions, it is important to consider other factors such as governments??? own policy actions and the degree of socio-political instability in affected countries to better assess the factors that might have exacerbated the crisis. Using Indonesia as a case study, we show that political turmoil and government policy actions taken independent of IMF programs lowered the dollardenominated stock market returns, while IMF-related news did not have any significant effect the returns. However, the negative impact of independent government policy announcements on investor wealth was larger than that of political instability.