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Lecturer blames "herd behaviour" for Asian crises
On 25 February, the UNU World Institute for Development Economics Research (UNU/WIDER) presented a public lecture at the Marina Congress Center in Helsinki, Finland. The featured speaker was Dr. K.S. Jomo, professor of economics at the University of Malaya in Kuala Lumpur, who spoke on the topic of "The Asian Crisis: Lessons and Prospects."
Dr. Jomo said the East Asian financial crises of the past two years were not caused by poor macroeconomic management, as many observers initially assumed, but rather resulted from inappropriate financial liberalization and a consequent undermining of monetary and fiscal governance. "Herd behaviour" in stock markets and injudicious official responses, he said, served to transform what was an inevitable correction of overvalued currencies into a wholesale collapse.
According to Dr. Jomo, while "crony capitalism" and "rent seeking" undoubtedly influenced official policy responses in some countries, in themselves they did not precipitate and cannot explain the crises. They may be said, however, to have exacerbated the crises and are likely to continue undermining confidence, thus delaying recovery.
It is now increasingly acknowledged, he observed, that the currency and financial crises became crises of the "real economy" mainly due to poor government and IMF policy responses.