Globalization and Development in the Mekong Economies
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Globalization and Development in the Mekong Economies

Edited by Suiwah Leung, Ben Bingham and Matt Davies

Since the late 1980s, Vietnam, Cambodia, PDR Lao, and Myanmar have been opening their economies to international trade and investment. With the exception of Myanmar, the reforms have yielded impressive results, but the process is far from complete. In this enlightening book, a group of leading scholars outline the continuing reform efforts needed to survive the current global recession and place these economies in a competitive position on the recovery of the world economy.
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Chapter 4: Finance, Trade and Development in East Asia: Opportunities for Mekong Economies

Suiwah Leung


Suiwah Leung INTRODUCTION 1 Before the financial crisis in 1997 most East Asian countries relegated financial development to the policy back-burner. Even the early 1980s debt crisis, which sparked a spate of financial deregulation, left the conventional wisdom that finance followed and complemented trade unexamined. Government policies needed to focus only on export-led growth and financial development would follow. In the early days of the Japan-centred production network from the 1980s through to the mid-1990s, Japanese banks supported Japanese companies in financing trade in Taiwan, South Korea and the ASEAN 4 (Malaysia, Philippines, Thailand and Indonesia). Japanese bank finance was usually intermediated through domestic banks because of the latter’s superior local knowledge (Gill and Kharas 2007). Concurrently, central banks pursued exchange rate stability by pegging the region’s currencies to a US dollar-dominated basket (Frankel and Wei 1994). Hence, Asian banks managed the credit risk while Asian governments managed the exchange rate risk (Gill and Kharas 2007). The failure of this strategy became painfully apparent during the 1997 banking and currency crisis (the Asian financial crisis). The economic and political consequences of the crisis re-focused government attention on financial development. Reform concentrated on clearing non-performing loans, better managing the region’s accumulated international reserves and building sound securities markets. Consequently, the 2008 global financial crisis has had a relatively small impact on the region’s banking and financial sector, although the negative fallout in trade and the real economy has necessarily been larger (McGuire and Tarashev 2008). The wealth of theoretical and empirical...

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