“In the midst of a crisis, no one knows how far an economy will drop or for how long. But capitalism, since its beginning, has been marked by crises; each time, the economy recovers, but each crisis carries its own lessons. So ten years after Asia’s crisis, it is natural to ask: what were the lessons, and has the world learned them? Could such a crisis recur? Is another crisis imminent?”

“Before the crisis, some thought risk premia for developing countries were irrationally low. These observers proved right: the crisis was marked by soaring risk premia. Today, the global surfeit of liquidity has once again resulted in comparably low risk premia and a resurgence of capital flows, despite a broad consensus that the world faces enormous risks (including the risks posed by a return of risk premia to more normal levels.)”

“But there are some big differences between then and now. Most developing countries have accumulated massive foreign currency reserves. They learned the hard way what happens to countries otherwise, as the IMF and US Treasury marched in, took away economic sovereignty and demanded policies intended to enhance repayment to Western creditors, which plunged their economies into deep recessions and depressions.”

“This growth in reserves, while providing insurance to developing countries, created a new source of global volatility. Especially as the dollar lost its sacred place as a store of value under the Bush administration, rebalancing these multi-trillion dollar portfolios entails selling off dollar holdings, contributing to the dollar’s weakening.”

“Indeed, the two most important lessons of the crisis have not been absorbed. The first is that capital market liberalization – opening up developing countries’ financial markets to surges in short-term “hot” money – is dangerous. It was not an accident that the only two major developing countries to be spared a crisis were India and China. Both had resisted capital market liberalization. Yet today, both are under pressure to liberalize.”

“The second lesson is that in a highly integrated world, there is a need for a credible international financial institution to design the rules of the road in ways that enhance global stability and promote economic growth in developing countries. With the IMF so dominated by the US (it is the only country with a veto) and Europe (which, by custom, appoints its head), the Fund was long seen as representing the interests of international creditors. Its failures in the 1997 crisis further undermined its credibility, and its failure to do anything about the massive global financial imbalances that represent the main threat to global financial stability today, have underscored its limitations(출처).”