Beyond the Asian Crisis

Beyond the Asian Crisis

Pathways to Sustainable Growth

Edited by Anis Chowdhury and Iyanatul Islam

As Southeast and Northeast Asia recover from the Asian crisis and return to a state of growth, the authors of this book assess the lessons to be learned from the crisis to achieve sustainable development in the future. While the importance of each factor contributing to the crisis varies from country to country, their collective experience has created unprecedented turmoil in current thinking on development policy.

Chapter 10: Weathering the Asian financial crisis: the experience of Taiwan

Tain-Jy Chen

Subjects: asian studies, asian innovation and technology, innovation and technology, asian innovation

Extract

10. Weathering the Asian financial crisis: the experience of Taiwan Tain-Jy Chen INTRODUCTION The Asian financial crisis came as a major setback to the rapidly growing East Asian economies, whose performance had been described only a few years earlier as ‘miraculous’.1 So sudden was the crisis that it prompted many critics to interpret it as the ‘death throes of Asian state capitalism’ and to consider it as the evitable outcome of state intervention (Wade, 1998), whilst sympathizers considered East Asia to be the victim of an attack on the region’s undersupervised and underregulated financial institutions, as a result of international financial panic (Radelet and Sachs, 1998). These two opposing views seem to suggest, however, that there is something in common, that is, that discretionary policies affecting resource allocation are dangerous, and that it is useful to adopt rule-based regulations that aim to protect the orderly functioning of the economic system, particularly the financial system. The crisis revealed several shortcomings within the economies of East Asia, caused both by excessive intervention and by inadequate regulation, including overinvestment, excess capacity, relational lending by financial institutions (that is, bank lending based not on commercial grounds, but on special status of the borrowers, such as good relations with the government, bank owner and so on), and lending against inflated asset values. Excessive and unwarranted lending pointed to the problem of moral hazard for which governments must assume responsibility, whilst inflated asset values pointed to the phenomena of asset bubbles which have...

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