The Asian Crisis: An Alternate View
Kumar, Rajiv; Debroy, Bibek | July 1999
Abstract
The paper argues that the macro focus of the literature on the Asian crises is not helpful in understanding the causes of the crises. The actual causes lie deeper in the operation of the real, that is, the corporate sector. In this context, the paper analyzes the micro behavior of individual firms. Risk-loving behavior of revenue-maximizing firms, engendered by the policy environment and the working of the financial sector, leads domestic producers to expect a continuation of specific incentives and expansions in demand. Capacity expansion and capital increases, tools used for diversification and grabbing larger market shares, are financed by raising debt, resulting in high gearing ratios and making firms critically dependent on unimpeded cash flow and availability of credit. Against this micro background, the paper argues that the handling of the crisis was inappropriate. Since the financial sector often exhibits characteristics of a public good, the paper argues for immediate recapitalization of banks through state intervention that rapidly restores credit availability. This strategy, which is fiscally viable, will revive credit to the real sector and revive growth.
Citation
Kumar, Rajiv; Debroy, Bibek. 1999. The Asian Crisis: An Alternate View. © Asian Development Bank. http://hdl.handle.net/11540/2482. License: CC BY 3.0 IGO.ISSN
0117-0511
Keywords
Asian Development Bank
Development
Regional Economic Integration
Financial Sector Policies
Financial Risk Management
Bond Financing
Economic integration
Development Bank
Capital Market
Regional Plans
Regional Development Bank
Development finance
Development Banks
Local government bonds
Bonds
Catastrophe bonds
Bond funds
Bond market
Multilateral development banks
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Citable URI
http://hdl.handle.net/11540/2482Metadata
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