This highly relevant study provides an incisive analysis of a
critical phase in recent East Asian financial history, exploring
the underlying causes of the financial crisis that struck Indonesia
during the second half of 1997.
Matsumoto's extensive commercial experience in Indonesian
finance during these critical years, allows him to skilfully argue
that the roots of the crisis lay in the period of capital
liberalization undertaken during the boom years from 1994 to 1997
which encouraged the development of fragile and unstable financial
structures, involving increased corporate leverage, reliance on
external debt, and the introduction of riskier and more complicated
financial instruments and transactions.
In-depth fieldwork data and four detailed case studies
illuminate the microeconomic foundations of the crisis, showing how
Indonesian capitalists sought to liquidate their Indonesian assets
without losing control of their corporate empires, by taking
advantage of increased access to foreign loans and complex
financial re-engineering, actions which ultimately precipitated
instability and crisis throughout the entire financial system.
Finally, it reflects upon the policy implications of this episode,
putting forward the case for comprehensive capital controls for
open and developing economies until they establish appropriate
financial institutions to monitor and manage the level of
indebtedness and the volatility of capitalists' behaviour.
General
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