The Importance of Asian Financial Cooperation by Yu Yongding

Since the global financial crisis of 2008, the economic and financial integration of East Asian economies has lost momentum. But, since engagement and cooperation are vital to the region’s long-term prosperity, it is in governments’ own interests to revive it.

BEIJING – On July 2, 1997, the Thai baht crashed. After waves of speculative attacks, the government ran out of foreign currency and became unable to sustain its peg of the exchange rate to the US dollar. Thus, he floated the baht, which fell in freefall. A wave of financial and non-financial Thai companies that had borrowed heavily in dollars filed for bankruptcy. The Asian financial crisis had begun.

Unable to service their foreign debt, Thailand, Indonesia and South Korea have turned to the International Monetary Fund for help. But IMF bailouts were too few, too late, and came with excessively harsh conditions. East Asia, was appearing more and more, better save itself.

The region certainly had resources. Although some countries, such as Thailand, recorded current account deficits, East Asia as a whole recorded an external surplus. Thus, in September 1997, Japan offered to pool the region’s foreign exchange reserves and use them to rescue countries in difficulty. The “Asian Monetary Fund” that would be set up to manage this facility would, it was promised, act faster and impose less stringent conditions than the IMF. But the United States and the IMF opposed the initiative, and the MFA was stillborn.

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