II. Main Point: What Is the Right Medicine?
Pathology and Therapy of the Asian Crisis
Exchange Rate: Floating or Pegged?
Fiscal Policy: Deflationary or Expansionary ?
Short-term Foreign Capital
Current Account Deficit
III. Liberalization: Scapegoat?
Financial Liberalization or Capital Control?
Yet recent analyses (Krugman 1999, cited by Radelet and Sachs 1999, Cohen 2000, Walter 2002, Stiglize 2002) argue that trade deficits cannot explain the crisis, and instead blame rapid financial liberalization in the 90\'s, because the financial liberalization directly contributed to the buildup in foreign capital and caused the crisis. However, more evidences are supportive of the view that financial liberalization does not necessarily lead to crises...
There is another voice arguing that it is fine for market liberalization, but not for financial liberalization. This argument is problematic as financial openness is the same idea as free trade. In capital poor states such as Southeast Asian economies, labor as the abundant factor benefits from capital importation. Financial openness, as free trade, optimizes national welfare.
Herding and Contagion?
Then can we say currency attack, or herding behavior, was responsible for the Asian crisis? Malaysian Prime Minister Mahathir condemned the \"rogue speculators\" and later pointed toward financier George Soros\' Fund Management , which was believed to have sold large amounts of baht in July, 1997 and made Asian currencies fall dramatically. This accusation suggests that once speculators attack, then crises will occur. Yet Soros also attacked HK dollar in August, 1998, why did it not erupt into a crisis? The way the government responded was to defend its dollar by supporting the stock market, which seems quite different from Malaysia\'s.
Some southeast Asian scholars contend that the Asian crises were mainly due to capital account liberalization and currency attack, thus, even \"sound economic fundamentals do not guarantee immunity from contagion and crisis (Jomo 2001, 8)\". However, contrary to the argument, Taiwan with striking sound economic fundamentals, was nearly unhurt by the crisis or contagion (The Economist 1998, 5). This demonstrates the significance of states\' capacity in response to crises. In fact, financial crises most likely occur in the states with \"fundamental vulnerability\" (Roubini and Setser 2004, 32), such as large macroeconomic imbalances, weakening government etc (op cit). The illness makes investors doubt about the state\'s credibility, and started a domestic panic. They might decide suddenly to convert their domestic assets into foreign exchange, thereby draining the foreign exchange reserves, and precipitate a crisis. The Asian financial crisis is, thus, not only a financial crisis, but also a confidence crisis.
文章定位：
