Financial Crisis in Asia and the IMF Recommendations

The Asian crisis which began in 1997 was a severe downturn which affected both regional and global economies. The grand role in the events was played by the IMF which provided the financial support packages conditioned on the implementation of its policy recommendations. The efficiency of these measures in mitigating the crisis events is a controversial question in the literature. This paper attempted to contribute to establishing a consensus on the issue for Thailand and Korea. The analysis of existing descriptive branch of the literature allowed to better understand the crisis events and to retrieve the stylized facts. The model by Shin (2005) was used a base framework because it allowed for the long-term equilibria of different types. The model was adjusted to account for the stylized facts, including the IMF-recommended policies. The mathematical condition for the long-term recovery equilibrium was derived, which is the key implication of the theoretical model. The model’s parameters were estimated on the Korean and Thai data of the crisis period. While the analysis of the Thailand case showed that the IMF policies led to the recovery equilibrium since the second half of 1998, which agrees with the literature, the poor quality of data on Korea did not allow to make a definite conclusion.