The Search for a Framework
ADBI series on Asian Economic Integration and Cooperation
Edited by Masahiro Kawai and Mario B. Lamberte
Masahiro Kawai and Mario B. Lamberte In 1997–98, emerging Asian economies were subjected to a crisis, with Thailand, Republic of Korea (hereafter Korea), Indonesia, and Malaysia being the most affected economies. The crisis was preceded by surges in private capital inflows of a largely short-term nature, creating double mismatches of currencies and maturities, and inflating asset prices, followed by a sudden stop and massive reversals of capital flows. With central banks of crisis-affected countries not being able to hold the line, currencies depreciated sharply, exposing the weaknesses of the banking system. Although the crisis devastated several emerging Asian economies, the recovery of crisis-hit countries proved to be remarkable, facilitated by comprehensive government reforms and a favorable external environment. Since the recovery from the Asian financial crisis, most emerging Asian economies have enjoyed current account surpluses, attracting more foreign capital, and accumulating international reserves that have reached new heights. Yet, these very same developments pose major policy challenges to policymakers in the region. Massive capital inflows put pressure on the currency to appreciate; this has prompted monetary authorities in the region to intervene in the foreign exchange markets. However, the tendencies of emerging Asia’s currencies to appreciate against the US dollar continue, threatening their competitiveness. Policymakers in the region are faced with questions on best policy responses and regional cooperation initiatives to utilize capital inflows while maintaining macroeconomic stability. Against this background, the Asian Development Bank Institute (ADBI) organized a series of conferences to provide a forum for policymakers, academics,...