10.2 Timing is another vital issue. Before adopting any policy in whichever direction, the government ought to ensure that all pertinent parties are ready. For instance, the Asian financial crisis in 1997-98 was partly due to the fact that financial deregulation was opted when domestic financial institutions were immature to cope with strong competition from abroad while the central monetary authorities were not adequately experienced in supervision and regulation, without good timing of policy implementation, the government could easily encounter vicious circles. Two explicit examples of these circles occurred when flotation of exchange rate was postponed and when ailing financial institutions were rescued.
10.3 Business and political influences are also important factors which may lead to some policy inconsistency and/or improper timing. That is understandable as decision-makers of macroeconomic issues frequently encounter some trade-off. But what the central authorities should constantly bear in mind is that macroeconomic policy errors regarding their consistency and timing are often difficult to rectify and tend to have a series of adverse repercussions.
10.4 formats as well as end uses of foreign borrowings are very crucial because they have immediate implications upon the vulnerability as well as debt servicing capacity of debtor countries. The countries which leaned towards foreign direct investment (e.g. Malaysia and the Philippines) were less susceptible than the ones which heavily counted upon short-term loans (e.g. Thailand and Indonesia). The degree of vulnerability is highly meaningful, especially in the case of small developing countries since capital flows are not only mobile to large extent but also huge relative to those countries’ foreign exchange reserves or monetary aggregates.
10.5 In short, the financial crises that Southeast Asian countries encountered were outcomes of mismanagement of capital flows together with mishandling of financial deregulation.
