Suchergebnisse

India survived near-crisis situations twice in the 1990s. What determined its ability to learn from the experience of a balance of payments crisis in 1991 to shield the economy from the pressures of the Asian financial crisis in 1997? By linking the two crises within a framework of external and internal economic and political constraints, the paper explains the dynamics of the crises. It argues that India's success can be attributed to five sets of decisions taken during 1991-97: devaluation, engaging the IMF, floating the exchange rate while increasing the central bank's autonomy to intervene against speculative pressures, opening up the external sector while maintaining asymmetric capital controls, and liberalising the financial sector. The paper analyses the options, political opposition and eventual outcomes for each set of decisions. Based on this approach it argues that India's ownership of its reform programme helped set the pace of reform while close interaction between technocrats and the IMF added credibility. But the balance between entrenched traditional interest groups and the demands of new interests determined the scope of reform. Finally, the paper raises broad political questions for the lessons other countries can draw from India's experience.

India survived near-crisis situations twice in the 1990s. What determined its ability to learn from the experience of a balance of payments crisis in 1991 to shield the economy from the pressures of the Asian financial crisis in 1997? By linking the two crises within a framework of external and internal economic and political constraints, the paper explains the dynamics of the crises. It argues that India's success can be attributed to five sets of decisions taken during 1991-97: devaluation, engaging the IMF, floating the exchange rate while increasing the central bank's autonomy to intervene against speculative pressures, opening up the external sector while maintaining asymmetric capital controls, and liberalising the financial sector. The paper analyses the options, political opposition and eventual outcomes for each set of decisions. Based on this approach it argues that India's ownership of its reform programme helped set the pace of reform while close interaction between technocrats and the IMF added credibility. But the balance between entrenched traditional interest groups and the demands of new interests determined the scope of reform. Finally, the paper raises broad political questions for the lessons other countries can draw from India's experience.

Political support for Argentina's currency board rested on distributing the early gains from ending hyper-inflation and the spending made possible with access to external credit. When these gains were exhausted and external shocks left the peso overvalued, neither Argentina's political system nor its economy could adjust. The needed adjustment went well beyond simple fiscal tightening: it required deciding who would incur the financial losses associated with the deep contraction needed to correct a real over-valuation in a heavily indebted economy. By 2000, Argentina faced the prospect of further economic contraction, a banking crisis and an external sovereign debt crisis. Even if none of the three crises was avoidable, preemptive action might have made one or more of them less severe. Yet preemption was a political orphan - no political constituency in Argentina argued to bring some pain forward for a chance of less pain down the road, and the IMF and G-7 preferred continued financing to the political risk of supporting a new macroeconomic strategy.