The Global Financial Crisis and the Return to Economic Growth
Chapter 5: International reforms
The Global Financial Crisis exposed the unpreparedness and inadequacy of international financial institutions. Until the current crisis broke in 2007, financial crises were events that hit developing nations from time to time, and the remedy was to put together an international bailout package led by the International Monetary Fund (IMF). For example, the Asian Financial Crisis of 1997–98 was handled with US$36 billion provided by the IMF to the three worst hit countries, Indonesia, South Korea, and Thailand, as part of total international support of almost US$100 billion. The United States took charge of the crisis through the IMF and the G-7, the seven biggest economic powers, and the matter was handled without much difficulty. Of course, the nations on the receiving end of the money had to accept and implement strict austerity measures, known as the “Washington Consensus,” cuts in government spending, tax reforms, privatization of state companies, deregulation, and hikes in interest rates, to put their houses in order. This was hard on the countries themselves, which went into deep recession, but the financial crisis was contained, Western economies were safe, and things returned to normal within a few years. This could not happen in the present crisis. This time the United States and the G-7 were themselves at the heart of the crisis, and US$100 billion was “chump change,” a drop in the bucket compared to the magnitude of the crisis.
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