The 68th Annual Report of the Bank for International Settlements for the financial year which began on 1st April 1997 and ended on 31st March 1998 was submitted to the Annual General Meeting of the Bank held in Basle, Switzerland on 8th June 1998.
Introduction: distinguishing symptoms from causes
It is understandable that the recent Asian crisis has attracted enormous attention. Although some difficulties had been foreseen, the suddenness with which the crisis began, the relentless process of contagion across countries and the magnitude of the collapse in exchange rates and asset prices were all unexpected and unprecedented in recent times. And the shock was all the greater in view of the emerging consensus that Asia was the model for the future. Nor is it totally clear that the worst is over. While financial markets have stabilised somewhat, the full impact on domestic companies and the institutions that have lent to them remains to be seen, as do the full social costs. The domestic sources of the crisis are, with hindsight, all too obvious. They might and should have been avoided. Excessive credit growth and associated over-expansion of the capital stock, inadequately supervised banking systems, asset price bubbles and excessively rigid exchange rate regimes played roles of varying importance in all of the countries affected. Nevertheless, it would be a mistake to conclude that all the difficulties could have been easily avoided if only domestic policies had been somehow better. These events have occurred against a backdrop of international macroeconomic imbalances which contributed materially to developments in Asia and may yet have further manifestations.
The views expressed here do not necessarily reflect the views of the BIS member central banks.