Winners and Losers in the Asia-Pacific
Edited by Noel Gaston and Ahmed M. Khalid
Chapter 5: Asian Financial Integration
Jennifer Corbett INTRODUCTION Many studies of the causes of the Asian financial crisis of 1997–98, and of the changes since those years, focused on the way the region’s financial systems linked with other financial systems and on flows of financial resources between them. The crisis was marked by the double problem of currency and maturity mismatches when firms borrowed short term, in foreign currencies, to fund long-term projects. In the years since the crisis the region has generated large savings surpluses and concern is now sometimes expressed that these savings are not available within the region to fund the obvious investment needs in infrastructure and other development areas. That concern also grows out of the experience leading to the crisis, when dependence on outside sources of financing exposed financial systems to instability. But it would be the wrong lesson to draw the conclusion that regional cooperation should be aimed at directing regional savings to regional investment needs. The patterns of financial flows within the region and between it and the rest of the world, are a reflection of the fundamental macroeconomic patterns of savings and investment and of the risk–return characteristics of financial instruments available regionally and globally. As long as the regions’ excess savings result in accumulated holdings of foreign reserves or in financial claims held outside the region it will be the case that the regions’ finances are intermediated outside the region. The financial resources do not necessarily stay outside the region (the data make it...
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