Simon Johnson on Lessons From the Asian Financial Crisis
In the fourth episode of our series on the Asian financial crisis, we talked with Simon Johnson, a professor at the MIT Sloan School of Management and a Senior Fellow at the Peterson Institute for International Economics. He previously served as the Chief Economist of the International Monetary Fund and has written numerous articles on both the Asian Financial Crisis and the global financial crisis.
Some of the key takeaways of our conversation with Simon include:
- The Asian Financial Crisis was the result of countries running large current account deficits stemming from overvaluation, rather than overinvestment.
- Corporate governance played a significant role during the crisis. Emerging Asian countries had similar governance problem and vulnerabilities, mainly rooted in family ownership of firms.
- Because many of the affected countries were export-oriented, they took advantage of the large depreciation in the real exchange rate in order regain competitiveness and recover from the crisis.
- After the crisis, policymakers’ views on capital liberalization changed and many now agree that emerging markets should limit capital inflows during booms.
- Safeguard measures for future crises involve increasing transparency in governance, as well as implementing high and robust capital requirements and funding policy on bank management.