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International Affairs
October 1999
The 1998 Russian debt default following the Asian financial crisis sent a signal to global capital markets that no country from now on could be seen as 'too big to fail'. The concern which followed Russia's crisis raised two questions: first, with regard to the relevance of the interest rate in the presence of highly lever-aged securities; and second, over the question of the protection of a country or institution from bankruptcy while simultaneously making sure that any rescue would not encourage either further risk-taking from investors or more badly managed policies from emerging market economies. Moreover, the moral hazard question, coupled with the sheer size of private capital flows, led international institutions to consider involving the private sector in solving financial crises. This article describes why a situation has now been reached where no future guarantee can be given to countries or financial institutions, implicitly or explicitly, that their debts will be bailed out.
The Asian financial crisis in 1997 reached Latin America the following year. The Brazilian devaluation in January 1999 demonstrated the vulnerability of Latin America's largest economy to external shocks, but it was also a consequence of fiscal imbalance. This article explores the background to the devaluation and explains the circumstances under which it might lead to an improvement in economic performance. The article then examines the impact of the devaluation on Brazil's neighbours in MERCOSUL, particularly Argentina. It also considers the lessons of the Brazilian devaluation in the context of attempts to reform the global financial architecture and in the light of the volatility of capital flows to emerging markets. The main conclusion is that the impact of the devaluation will be felt most strongly in Brazil and that a successful outcome will require economic and political reforms over and above those already adopted by the Cardoso administration.
This article looks at the creation of the Asia-Europe Meeting (ASEM) and itsimpact on European Union-South-East Asian relations. It suggests that as withother regions of the world, the EU uses framework agreements to regulatecontact with other international actors. The article argues that the EU's renewed interest in the region, signposted by the Commission's 'Towards a new Asia strategy' and the proposal 'Creating a new dynamic in EU-ASEAN relations', as well as the formation of ASEM, is driven by three principal concerns: a need to meet the challenges of the post-Cold War period by extending structured contact to new interlocutors beyond ASEAN; a need to restate the EU's credentials as a stakeholder in the region, thus legitimizing European political and economic interests alongside those of other global actors such as the United States and Japan; and a new-found interest in defining acceptable economic and human rights standards as a precondition of privileged contact with the EU.
However, while ASEM offers greater connectivity between different activitiesof the EU and may bring a more coordinated approach to the relationship, it is unlikely to lead to a qualitative shift in engagement. For a variety of reasons-notably the lack of geographical proximity, economic asymmetry, and a preoccupation with central and eastern Europe-South-East Asia will remain a marginal area of engagement for the EU. With regard to future developments,structured contact between the EU and South-East Asia will survive not leastbecause of the potential economic importance of the latter and the continuingcompetition in the region from the United States, Japan and...
The 1997 Asian financial crisis has been a debilitating experience for the ASEAN countries, with attendant political transformation and economic readjustment. Regional unity has also been affected: ASEAN appears to lack resolve and cohesion as well as the ability to forge common action. While political change has been effected and more open systems are in place, ASEAN countries now seem set to bounce back with renewed vigour and a business-as-usual approach to their economies. However, ASEAN's revitalization into the next century will significantly depend on the region's most important polity, Indonesia, the country most affected by the crisis and now undergoing substantive change.
There are two types of explanations of the Asian financial crisis: the 'fundamentalist', which focuses on macroeconomic imbalances; and the 'self-fulfilling', which ascribes the crisis to beliefs. This article argues that while both have some merit in explaining the Korean crisis, neither fits the facts very well. The authors put forward a new explanation which emphasizes the role played by financial liberalization and the structural weaknesses in the banking system. They explain that the combination of these factors created conditions that made the Korean banking system vulnerable to the sentiments of foreign investors, simultaneously eroding the ability of the Korean central bank to act effectively as a lender of last resort. The authors examine how various policy mistakes aggravated the crisis and draw some conclusions that may be useful for other emerging market economies.
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