The 69th Annual Report of the Bank for International Settlements for the financial year which began on 1 April 1998 and ended on 31 March 1999 was submitted to the Bank's Annual General Meeting held in Basel on 7 June 1999.
Introduction: the darker side of market process
The sense of foreboding that pervaded the economic and financial scene in the period under review proved unwarranted. Without doubt, some bad things happened. The Asian crisis lingered on, reminding both those directly affected and those on the sidelines that the great strengths of a market-based system can be marred by institutional and other weaknesses.The spread of the turmoil to Russia was less of a surprise than the subsequent violent repercussions on financial markets of the Russian devaluation and debt moratorium. Attempts to flee from credit and transfer risks led to sharp drops in the prices of many financial assets, and a drying-up of liquidity in a large number of markets. Banks, hedge funds and other financial institutions in the major financial centres suffered massive losses and one financial institution previously respected for its market acumen was rescued from failure.
Still, events did not unfold as badly as some had feared. The crisis in financial markets in August and September last year was contained through a timely policy response. Moreover, the underlying infrastructure continued to function well even under unusual stress. The Brazilian real was devalued but this did not lead to the collapse of other exchange rate regimes in either Latin America or Asia. On the contrary, the overall impression in spring 1999 was that financial markets in Asia had stabilised and that the deep recession seen in many Asian economies had bottomed out. Even in eastern Europe, which might have been regarded as vulnerable, financial conditions generally remained calm and growth prospects weakened only a little.
The views expressed here do not necessarily reflect the views of the BIS member central banks.