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Moral Hazard, the IMF, Mexico and Asia

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journal contribution
posted on 25.08.2011, 00:00 authored by Allan MeltzerAllan Meltzer

The 1977 collapse of Asian financial systems is the latest in a series of dramatic financial failures. Each of the troubled Asian countries - - Thailand, Indonesia, Malaysia, Philippines, Korea — has its own story, and none of the stories is identical. But there is a common core: Mistaken public policies encourage large-scale domestic and foreign borrowing; explicit or implicit guarantees make risks appear lower than they are; an unanticipated event suddenly changes reality and perceptions of risk; industrial, commercial and financial failures grow; the International Monetary Fund (IMF), assisted by the U.S. Treasury and others, lends money to prevent some of the failures.

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25/08/2011

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