Reform and recovery in East Asia : the role of the state and economic enterprise

This exciting sequel to East Asia in Crisis offers a completely up-to-date assessment of the progress of East Asian recovery, including coverage of the controversial topic of the role of the state in East Asian development. Featuring an outstanding line-up of international contributors, many of whom also contributed to East Asia in Crisis, this title also provides a detailed review of the experience of the region's economies. It is stimulating and informative reading for all those interested in further understanding the dynamics of East Asian economic crisis and recovery. Book Cover......Page 1 Half-Title......Page 2 Title......Page 3 Copyright......Page 4 Contents......Page 5 Figures......Page 7 Tables......Page 8 Contributors......Page 10 Preface......Page 12 INTRODUCTION......Page 14 THE STORY SO FAR......Page 15 THE ROLE OF THE STATE IN THE ECONOMY......Page 16 THE BUSINESS-GOVERNMENT NEXUS IN EAST ASIA......Page 18 The role of reform in recent macroeconomic performance......Page 20 The role of reforms in reducing vulnerability......Page 21 The impact of reforms on long-term performance......Page 22 PROBLEMS OF TRANSITION......Page 23 REFERENCES......Page 25 THE LEGACY......Page 26 THE ECONOMIC LEGACY OF CRISIS......Page 33 IMPLICATIONS FOR THE MULTILATERAL AND REGIONAL ECONOMIC ARCHITECTURE......Page 38 REFERENCES......Page 40 INTRODUCTION......Page 41 JAPAN’S BANK CRISIS......Page 42 Emergency policies......Page 43 Restructuring in the prewar period......Page 45 Influence of the wartime controls......Page 46 Postwar reconstruction of financial institutions......Page 47 DEFECTS OF GOVERNANCE IN BANK MANAGEMENT......Page 48 The mechanisms of the safety net in Japan......Page 49 Deposit insurance in Japan......Page 51 Disciplinary influence of market competition......Page 52 Role of competition-restricting regulations......Page 53 The role of regulators: another agency problem......Page 54 Principal-agent problem with regard to regulators......Page 55 A VACUUM OF GOVERNANCE AND MARKET RESPONSES......Page 56 Was the ‘bubble’ a result of moral hazard?......Page 57 Delayed restructuring in bank management......Page 58 How has the market responded to the crisis?......Page 60 CONCLUSION......Page 64 NOTES......Page 66 REFERENCES......Page 71 4 The state, banking and corporate relationships in Korea and Taiwan......Page 74 OVERVIEW OF DEVELOPMENT MECHANISMS......Page 75 Commonalities and contrasts......Page 79 BANKING AND CORPORATE RELATIONSHIPS......Page 80 Industrial characteristics......Page 85 Corporate sector performance......Page 87 Competitiveness......Page 88 GOVERNANCE AND LATECOMER INDUSTRIALISATION......Page 90 POST-CRISIS ISSUES: KOREA......Page 95 The role of financial institutions......Page 96 Improving exit mechanisms......Page 97 Promoting the restructuring of business groups......Page 99 Competition policy......Page 101 POST-CRISIS ISSUES: TAIWAN......Page 102 FUTURE CHALLENGES......Page 105 Evolutionary issues......Page 107 NOTES......Page 108 REFERENCES......Page 110 INTRODUCTION......Page 114 Capital controls before 1990......Page 117 Did the controls work?......Page 119 Financial liberalisation after 1990......Page 120 THE FINANCIAL SECTOR AFTER THE CRISIS......Page 121 Capital controls......Page 123 Banking reform......Page 124 Reforming the regulatory framework......Page 128 Civil actions against executives of financial institutions......Page 129 BOND MARKETS......Page 130 Non-performing loans......Page 131 ‘Strategic’ NPLs......Page 132 Banking reforms......Page 133 REFERENCES......Page 134 INTRODUCTION......Page 136 Governance in the national agenda......Page 138 Corruption and governance......Page 140 Governance and the rise and fall of Soeharto......Page 141 IMF-supported reform and recovery......Page 147 Enter the IMF with a governance agenda......Page 153 Towards a regional surveillance mechanism......Page 156 Strengthening civil society......Page 157 REFERENCES......Page 159 THE POLITICAL ECONOMY OF THE RENT-GENERATING GOVERNMENT......Page 161 THE SOEHARTO-BUSINESS SYMBIOSIS......Page 163 Centralisation of power......Page 164 Rule of law......Page 165 Reliance on the military......Page 166 Civil and military salaries......Page 167 The role of the technocrats......Page 168 RENT GENERATION......Page 170 PRIVATISING THE LAFFER CURVE......Page 172 The role of Islam......Page 173 Deregulation......Page 174 Improvements in civil service salaries and conditions......Page 175 First family depredations......Page 176 WHY DID THE SYSTEM COLLAPSE?......Page 177 LOOKING TO THE FUTURE......Page 179 NOTES......Page 180 REFERENCES......Page 181 INITIAL POLICY RESPONSE......Page 184 THE EXPERIMENT......Page 186 SIGNS OF RECOVERY......Page 189 HAS THE EXPERIMENT WORKED?......Page 193 Capital controls and monetary policy autonomy......Page 194 FIXED EXCHANGE RATE AND EXPORT-LED RECOVERY......Page 195 Controls and foreign direct investment......Page 196 PORTFOLIO INVESTMENT......Page 198 CONCLUSION......Page 199 NOTES......Page 202 REFERENCES......Page 204 INTRODUCTION......Page 207 What is corporate governance?......Page 208 Sound corporate governance and macroeconomic stability......Page 209 SYSTEMS OF CORPORATE GOVERNANCE......Page 211 The Philippine system of corporate governance......Page 212 THE ROLE OF A MONITOR......Page 214 The role of banks as corporate monitors......Page 217 The role of government and the market as corporate monitors......Page 220 CURRENT TRENDS......Page 222 FUTURE ISSUES......Page 225 NOTES......Page 227 REFERENCES......Page 228 INTRODUCTION......Page 231 REDEFINING THE STATE-ENTERPRISE RELATIONSHIP......Page 232 GROWING FINANCIAL FRAGILITY......Page 235 PREPARING FOR CAPITAL ACCOUNT LIBERALISATION......Page 239 CONCLUDING REMARKS......Page 241 NOTES......Page 242 REFERENCES......Page 243 INTRODUCTION......Page 246 IMPACT OF THE REGIONAL CRISIS ON SINGAPORE AND HONG KONG......Page 247 POLICY RESPONSES TO THE CRISIS: SINGAPORE......Page 248 Exchange rate policy......Page 250 Financial centre development......Page 251 Banking supervision and financial market regulatory reform......Page 253 Corporate governance......Page 254 POLICY RESPONSES TO THE CRISIS: HONG KONG......Page 255 The Hong Kong version of a currency board......Page 256 Exchange rate mechanism reform in Hong Kong......Page 258 Extreme measures in the stock market......Page 259 Banking reform in Hong Kong......Page 260 SUMMARY AND CONCLUSION......Page 263 NOTES......Page 264 REFERENCES......Page 267 APPENDIX 11.1......Page 269 Old orthodoxies, new heresies......Page 273 The case for free capital movements......Page 274 A distortions approach......Page 275 Capital inflows......Page 277 Capital outflows......Page 279 DIAGNOSING THE PROBLEM......Page 281 Implicit subsidies to the accumulation of foreign debt......Page 282 Exchange rate policy......Page 283 Interaction of foreign capital flows with domestic distortions......Page 284 Interaction of foreign capital flows with financial sector distortions......Page 285 Externalities associated with foreign borrowing......Page 286 Imperfect information......Page 287 The developed country paradigm: aiming for ‘best practice’......Page 288 Reducing vulnerability: policies for the short and medium term......Page 290 Sequencing and prohibitions: policies for the less developed......Page 293 Lateral thinking: short cuts to avoiding financial sector distortions......Page 294 CONTROLS IN TIMES OF CRISIS: THE MALAYSIAN CASE......Page 295 CONCLUSIONS......Page 296 NOTES......Page 298 REFERENCES......Page 299 THE CONTEXT FOR FINANCIAL AND CORPORATE RESTRUCTURING......Page 301 AGENDA FOR RESTRUCTURING......Page 303 Financial sector restructuring: resolution, recapitalisation and rehabilitation......Page 304 Corporate restructuring......Page 305 PROGRESS TO DATE AND OUTSTANDING ISSUES: COUNTRY BRIEFS......Page 306 Progress in financial sector restructuring......Page 307 Progress in corporate sector restructuring......Page 310 Outstanding issues in financial and corporate sector restructuring......Page 312 Korea......Page 313 Progress in financial sector restructuring......Page 314 Progress in corporate restructuring......Page 317 Outstanding issues in financial and corporate sector restructuring......Page 319 Progress in financial sector restructuring......Page 320 Progress in corporate restructuring......Page 322 The Philippines......Page 323 Progress in corporate sector restructuring......Page 324 Thailand......Page 325 Progress in financial and corporate sector restructuring......Page 326 Progress in corporate sector restructuring......Page 328 Outstanding issues in financial and corporate sector restructuring......Page 330 Creditor constraints......Page 331 Debtor constraints......Page 332 Government and international constraints......Page 333 SUMMARY......Page 334 NOTES......Page 335 INTRODUCTION......Page 346 An economic constitution......Page 347 Designing a constitutional convention for the international financial system......Page 349 Highly leveraged institutions......Page 352 Moral hazard and IMF-supported reform programs......Page 353 Measures to strengthen the international financial system......Page 354 International standards, transparency and capital account rules......Page 355 Strengthening surveillance through organisational change......Page 356 The structure of the IMF......Page 357 The role of regional groups......Page 359 ADDRESSING CRISES—THE ROLE OF THE PRIVATE SECTOR......Page 360 CONCLUSIONS......Page 362 REFERENCES......Page 364 THE RATIONALE FOR AN INTERNATIONAL ECONOMIC CONSTITUTION......Page 365 NOTES......Page 367 Abbreviations......Page 369 Index......Page 373 Perspectives / Dominic Wilson and Peter Drysdale East Asia after the financial crisis / Ross Garnaut Japan's bank crisis and the issue of governance / Akiyoshi Horiuchi The state, banking and corporate relationships in Korea and Taiwan / Heather Smith Thailand's experience with reform in the financial sector / Bhanupong Nidhiprabha and Peter G. Warr Governance and the crisis in Indonesia / Hadi Soesastro Government-business relations in Soeharto's Indonesia / Ross H. McLeod The Malaysian experiment / Prema-chandra Athukorala Reform and the corporate environment in the Philippines / Angelo A. Unite and Michael J. Sullivan State-owned enterprise and bank reform in China : conditions for liberalisation of the capital account / Yiping Huang and Ligang Song Governance in the city-states : Hong Kong and Singapore / Cheng Yuk-shing, Chia Siow Yue and Christopher Findlay Managing capital flows in East Asia / Domimic Wilson Building institutions and resolution of the East Asian crisis / Masahiro Kawai Shaping East Asia's recovery : post-crisis reform of the international financial system / David Nellor

the Role Of The State In East Asian Development Has Always Been A Controversial Topic. The Financial Crisis In East Asia Has Rekindled The Debate Over The Appropriate Roles Of The State And Economic Enterprise Across The Region. With Extensive Reform Programs Underway In Almost Every Economy, There Is A Renewed Focus On The Role That Governments And Governance Can Play Both In Determining Future Performance And Preventing Future Catastrophe. The Contributors To This Book Explore Various Aspects Of The Recent Experience Of East Asian Economies And Come To Some Surprising Conclusions Regarding The Importance Of Market Strengthening And Government Systems In The Sustainabilty Of Economic Recovery. This Book Argues That The Process Of Recovery Is Largely Cyclical, But That Reforms Can Play A Major Part In Reducing Future Vulnerability. It Concludes That Successful Structural Reform Is A Central Determinant Of Long-run Growth Performance, Particularly As Countries Approach The Technological Frontier.

The role of the state in East Asian development has always been a controversial topic and the financial crisis in the area has rekindled the debate over the appropriate roles of the state and economic enterprise across the region. With extensive reform programs underway in almost every economy, there is a renewed focus on the role that governments and governance can play both in determining future performance and preventing future catastrophe. The contributors to this volume explore various aspects of the recent experience of East Asian economies and come to some surprising conclusions regarding the importance of market strengthening and government systems in the sustainability of economic recovery. Annotation This exciting sequel to East Asia in Crisis offers a completely up-to-date assessment of the progress of East Asian recovery and provides a detailed review of the experience of the region's economies