Will Bank Bailouts Bust Budgets? Fiscalisation of the East Asian financial crisis

Jay K. Rosengard

Asian-Pacific Economic Literature, 2004, vol. 18, issue 2, pages 19-29

Abstract: East Asia has returned to a position of relative financial stability and modest economic growth seven years since the onset of the East Asian financial crisis, but the long-range impact of the crisis is still unclear, especially regarding fiscal ramifications. Thailand and Indonesia were two of the hardest hit economies and each had exemplary fiscal policies before the crisis. Since the crisis, both countries have maintained prudent fiscal policies, keeping budget deficits relatively small, managing debt burdens effectively and limiting exposure to contingent liabilities. Both countries have addressed the short-term triggers of the financial crisis admirably and continue to monitor vigilantly their external vulnerabilities. Thus, if either country experiences a fiscal crisis, it will be the result of other factors-bank bail-outs will bust budgets only if banks have to be bailed out once again due to incomplete or insufficient financial sector reform. Copyright 2004 Asia Pacific School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd.

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