"EXTERNAL SECTOR LIBERALISATION :: SOUTH ASIAN CRISIS" PAPER PRESENTED BY DR G RAGHAVAN, PROFESSOR OF FINANCE, SDM INSTITUTE FOR MANAGEMENT DEVELOPMENT, MYSORE IN THE SEMINAR ORGANISED BY APEX COLLEGE, KATHMANDU IN JULY 2005 AT KATHMANDU, NEPAL
EXTERNAL SECTOR LIBERALISATION :: SOUTH ASIAN CRISIS* *Prof G Raghavan, SDM Institute for Management Development, Mysore Introduction Very few economic events other than the Great Depression of 1930s have generated such worldwide interest, debate and deliberation as the Asian Financial Crisis of the 1990s. Its sudden emergence and occurrence in the lands of economic integrity, export competitiveness and thrust has shocked many. Equally surprising is their subsequent remarkable recovery in a very short time. The debate is still going on to diagnose those issues that lead to the crisis to open up new horizon and also to pursue approaches to handle such future crises. This is indeed one such earnest attempt. Before we proceed further, we may try first to familiarize ourselves with the Asian countries and their classification. It is surprising to note that South Asia is defined differently by various agencies. SAARC defines South Asia as Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. World Bank definition of South Asia includes the seven SAARC countries and Afghanistan. United Nations Development Programme (UNDP) definition of South Asia is even broader and includes Iran. For East Asia also, there is the same element of uncertainty due to its different interpretations. In the World Bank's classification, East Asia comprises countries east of South Asia and the Pacific Islands includes Japan, Australia and New Zealand form one group, while in UNDP's classification, East Asia consists of only China, Hong Kong, South Korea and Mongolia. For the purpose of our deliberations, we shall consider all the major Asian countries that were involved in the Asian Financial Crisis overlooking whether they belong to South or East. This approach may facilitate us to obtain a comprehensive picture. We believe you would agree with this approach. The Asian countries transformed themselves from a position of slowest growing region during the 1960s and 1970s to one of the fast growing regions in the
world in the 1980s. Despite this, by being the most densely populated region, it remained one of the very poorest regions in terms of per capita income. The financial imbalances, large size fiscal and revenue deficits and resultant reduced public sector savings were and continue to be the characteristics of the governments in the Region. By choice or compulsion, almost all the major Asian countries have taken upon themselves to globalize to participate in the ever growing international trade and services. However, their approaches towards globalization were and are still different - from conventional to modern; sometimes even unconventional. Exchange rate mechanism One of the major reasons cited for the Asian Financial Crisis is the exchange rate mechanism prevailing in the different countries of the Region. There is really a great confusion probably due to lack of clarity about the meaning of exchange rate mechanism. There are,