Under what circumstances, past and present, have international rescues of countries in financial distress been successful?

Abstract

Recent events in Asia and other parts of the globe have prompted calls from many quarters for international rescue of the monetary or fiscal authorities in distressed countries. We contrast the experience of rescues of monetary authorities before 1973 of advanced countries temporarily short of liquidity with recent experience of bailouts. International rescues in the past have involved relatively small amounts of money, sufficient to stave off devaluation or abandonment of a fixed exchange rate while remedial policies were put in place. Recent bailouts have involved handing over relatively large amounts to both foreign lenders and domestic investors after devaluation of a pegged exchange rate to avoid their incurring wealth losses. We document past rescues, whether successful or unsuccessful, by monetary regimes, and show what is different today from past experience. © 1999 Elsevier Science Ltd. All rights reserved.