October 11, 2013
WASHINGTON—The financial crisis and economic downturn that have engulfed the United States and Western Europe came nearly a decade after the financial crisis of the 1990s in East Asia. A new book jointly produced by the Peterson Institute for International Economics and Asian Development Bank concludes that one cause of the most recent crisis was that the West failed to heed the very recommendations that they had urged on Asia in the late 1990s.
The book, Responding to Financial Crisis: Lessons from Asia Then, The United States and Europe Now, includes eight research papers analyzing different dimensions of the various past crises in Asia, the United States and Europe, and the policies mobilized to minimize the damage and avert future difficulties.
In the Asian financial crisis of 1997-98, for example, policymakers at least believed that they gained a great deal of knowledge on how to prevent, mitigate, and resolve crises in the future. Fifteen years later, the Asian developing countries escaped the worst effects of the global crisis of 2008-10, in part because they had learned the right lessons from their own experience. The inconsistency between what the United States and Europe preached and what they practiced themselves has brought grave consequences for the global economy.
"Such inconsistency cost the Western economies and the world not just in terms of hypocrisy but, more importantly, also in terms of greater damage and lesser resilience once financial crisis did hit the North Atlantic," write Adam S. Posen, president of the Peterson Institute, and Changyong Rhee, chief economist of the Asian Development Bank.
The overriding lessons emerging from the essays in the volume are that countries need to prepare for crises as if they cannot be prevented, make room for stabilization policies and deploy them rapidly when crises hit, and address the need for insurance globally if they can, or regionally if they must.
While prevention of crises would be better, the fact that such crises emerged and persisted in the United States and European Union warns all policymakers everywhere to prepare ahead to respond to and manage crises, for they may be next.
About the Peterson Institute
The Peterson Institute for International Economics is a private, nonprofit institution for rigorous, open, and intellectually honest study and discussion of international economic policy. Its purpose is to identify and analyze important issues to making globalization beneficial and sustainable for the people of the United States and the world and then to develop and communicate practical new approaches for dealing with them. The Institute is widely recognized as nonpartisan. It receives its funding from a wide range of corporations, foundations, and private individuals from the United States and around the world, as well as from income on its endowment.
About the Asian Development Bank
The Asian Development Bank's vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their people. Despite the region's many successes, it remains home to two-thirds of the world's poor: 1.7 billion people who live on less than $2 a day, with 828 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.