Lessons from East Asia

Abstract

A year has passed since the onset of the Asian financial crisis. We are not sure that we have seen the final act of the drama. The East Asian experience shows that if there is an open capital account, the recipient country must have a stricter system of monitoring the inflows. A supervisory control over the financial system must also be very stringent. A loose domestic financial system and large capital inflows are the worst combination. It invites danger. According to Rangarajan/the lesson to draw from the East Asian crisis is that the capital account liberalization and reform of the financial system should move in tandem.