Asia may be bouncing back. But apprehension was in the air when the
IMF, the World Bank and the Asian Development Bank convened a
conference in Washington to discuss financial contagion. Rudiger
Dornbusch, MIT's celebrated international economist, was one of the
prime movers for this event. He talked to James Smalhout.
Would the official community have reacted any differently to
the Asian crisis in July 1997 had we known then what we know now
about financial contagion?
No, I think that the research shows two things of interest. First,
every one of those economies had horrible balance sheets and with
an accident you're going to get a big fallout.
The fallout gets aggravated by lack of liquidity, by a lack of
knowing what is happening next in politics, by a question of
whether the government will choose to default rather than have a
serious fiscal impact in the budget that is politically...
