21st Century Business Herald reporter Hu Huiyin reported
“I think that all countries currently hope to strengthen regional cooperation. Because in times of crisis, people hope to share and exchange results, such as the “Chiang Mai Agreement” we have seen.” Chairman of Japan’s Mizuho Research Institute, Asian Development Former Bank President Takehiko Nakao said at the International Symposium on Retrospect and Enlightenment of the 25th Anniversary of the Asian Financial Crisis on August 19.
Twenty-five years have passed since the Asian Financial Crisis, and at present, the risk factors in the world are increasing. At the meeting, Nakao Takehiko reviewed the causes of the Asian financial crisis and the measures that Asian countries have taken to continue their development after overcoming the Asian financial crisis.
Takehiko Nakao said that there were many reasons for the Asian financial crisis that year, such as the opening of capital markets and capital transactions in Asian countries, and the opening of short-term capital inflow channels such as financial investment in many Asian countries, causing a large influx of capital into Thailand, Indonesia, South Korea, and Malaysia. other countries. Among them, the important background of the Asian financial crisis is the peg to the exchange rate system. He said, “The currencies of many countries are stably pegged to the US dollar, resulting in an exchange rate system that is in fact pegged to the US dollar. Therefore, after a large influx of capital, it has led to very serious exchange rate risks. However, many investors believe that in foreign exchange There is no risk in that regard.”
Second, an important reason for the crisis is the problem of borrowing mismatches in these Asian countries.
Nakao Takehiko said that these Asian countries borrowed dollars and then used their local currencies to lend to domestic investors, creating a currency mismatch problem. This way of borrowing is often short-term debt or long-term debt, so investment funds often enter some industries with poor returns, including the real estate industry. It wasn’t long before these countries were experiencing overheating problems and growing current account deficits backed by external debt. Based on this, Thailand had to abandon the peg to the dollar and adopted a free-floating system at that time, and the same situation spread to Indonesia, South Korea and other Asian countries. Therefore, at that time, a large number of capital outflows occurred in many countries, and the currency crisis gradually evolved into a banking crisis, which affected a large number of enterprises and investors.
In addition to reviewing the Asian financial crisis, Takehiko Nakao also reflected on the approach taken by international organizations in responding to the crisis at that time. For example, the International Monetary Fund (IMF) at that time asked these Asian countries to tighten monetary policy, but this approach may cause further economic chaos. For example, Takehiko Nakao said that the South Korean economy was strong at that time, and the crisis did not come from loose fiscal and monetary policies. He further said that countries should carry out financial reforms, such as the exchange rate should be more liberal, the establishment of early warning systems, while strengthening the financial sector and establishing sound financial regulations.
What changes need to be made after the Asian Financial Crisis? Nakao Takehiko believes that it is very necessary for the world‘s emerging economies to be included in the global governance system. In addition, regulations and international standards in the financial sector need to undergo some changes and reforms. He particularly emphasized that all countries should strengthen regional cooperation and continue to strengthen the construction of the international financial system.
Although many countries have made many efforts to avoid the crisis after the Asian financial crisis, Nakao Takehiko believes that the risk factors in the world are still increasing, such as the rise in commodity prices brought about by the conflict between Russia and Ukraine, and the emergence of government debt in Japan and other countries. The problem of excessive proportion of GDP, etc. In this regard, he called on all countries in the world to prepare for potential crises and avoid the recurrence of crises.
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