If there is a period of doubt about current account deficits, real exchange rates, or loan quality, the higher interest rates raise currency and default risks and deteriorate balance sheets. This to the benefit of savers. Labour is squeezed. In period of crisis, output losses rise, labour demand falls, as do the margins in the informal sector. Devaluation raises food and medicine prices.
Bank failures induce lower social spending, higher public debt.
The poor, in particular, bear the social burden of the crisis. Mr Reisen concluded with the following suggestions for growth promotion and poverty reduction. Open up to equity inflows. Avoid premature opening up to bank credit flows, strengthen banking system first. In some cases, such as Japanese Banks, the turnaround in bank lending in East Asia was also related to the conditions in the financial sector in the home economy.