The Evidence and Impact of Financial Globalization

Chapter 44

East-Asian Crisis of 1997

S.R. Ghosh

The World Bank, Washington, DC, USA

Outline

Introduction

Origins of the Crisis

Dimensions of Vulnerability and their Causes

Introduction

Dimensions of Vulnerability

Macroeconomic vulnerability

Banking sector fragility

Corporate sector vulnerability

Causes of the Buildup in Vulnerability

Incentives for short-term external borrowing spurred by macroeconomic policy responses

Regulatory and supervisory weaknesses in East Asia’s financial sectors, leading to financing of risky investments and weakening balance sheets

Weaknesses in corporate governance and transparency, leading to overleveraging and inefficient risky investments

Microeconomic factors contributing to the buildup of vulnerability

Onset of the ...