ON THE ROAD TO RECOVERY? INTERNATIONAL CAPITAL FLOWS AND DOMESTIC FINANCIAL REFORMS IN EAST ASIA

Abstract

ON THE ROAD TO RECOVERY? INTERNATIONAL CAPITAL FLOWS AND DOMESTIC FINANCIAL REFORMS IN EAST ASIA Ramkishen S. Rajan This paper discusses trends and patterns in international capital flows in the crisis affected East Asian economies during the bust period and eventual recovery that followed (1997 to early 2000). The economies have experienced a rapid rebound in regional economic activity, i.e. the recessions, though severe, have proven to be short-lived. While this is generally taken as a sign of the regions oft-repeated economic strengths (such as their high saving rates), in actuality, such a post-crisis V-shaped recovery is not unique to East Asia, typifying financial crises experiences in general. Rather, of concern is that the rapid recovery in capital flows and economic activity in regional economies may retard their commitment to push ahead with necessary structural reforms so essential to ensure that growth is sustained. The paper therefore offers an overview of the financial sector restructuring efforts undertaken by the crisis hit economies to date. Keywords: bank lending, bank panic, bonds, capital flows, East Asia, FDI, financial reforms, portfolio flows JEL codes: F30, F32, F41 Contact author(s): Ramkishen S. Rajan School of Economics and CIES Adelaide University SA 5005 AUSTRALIA Tel: +61 8 8303 4666 Fax: +618 8223 1460 E-mail: ramkishen.rajan@adelaide.edu.au 2 1.

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