living standards of all - particularly the poorest - while containing the risks it entails, such as those we have seen materialize so brutally in asia, and those at least equally pernicious, even if less spectacular, of the continuous marginalization of the poorest countries. what kind of new architecture of the global system could achieve this? the response must be deduced from a proper analysis of the most recent crises. contrary to what we saw during the debt crisis of the 1980s, the problems in asia were not almost exclusively macroeconomic in nature ; even if these countries suffered, all of them, from some deficiencies in this respect, by and large they had long track records of successful economic management. rather, in a context dramatically changed by a major realignment between the dollar and the yen, and important differences in short - term yields, three other factors helped trigger the crisis : • • the weakness of their public and private banking and financial structures ; an unsustainable accumulation of short - term financing - particularly of interbank lending, which alan greenspan refers to as the achilles ’ heel of the • international financial system - which made countries particularly vulnerable to a sudden shift in market sentiment. and, last but not least, deep - seated problems of governance, corruption, and what us commentators call “ crony capitalism ”. together with the macroeconomic problems, these three major factors had to be addressed for our response to the crisis to be pertinent. if you examine our programs with thailand, korea, and indonesia, you will see that we have tried to deal with these factors, and they will have to be taken into consideration in the future in whatever efforts are undertaken to avoid the recurrence of crises. but even that will not suffice. in view of the enormous human and economic cost of the asian crisis, no wonder we hear many radical suggestions as to how to avoid such losses in the future. there are calls for us to do a better job of predicting and preventing crises, addressing their social impact more effectively, stopping speculators and properly regulating this “ casino economy ”, seeing to it that investors bear the full costs of their mistakes, stabilizing the international monetary system, providing for more political accountability of our institution, etc., etc. we cannot deny the basic justification of these - at times vociferous - calls for change. no doubt there are at least some elements of validity in each of them. taken together they tell us that

mr. camdessus considers the lessons from southeast asia remarks by the managing director of the international monetary fund, m. michel camdessus, at a press briefing in singapore, on 13 / 11 / 97. how could events in southeast asia unfold as they did, after so many years of outstanding performance? we have a fairly clear analysis of what happened in thailand. the more difficult question is how the crisis spread so quickly to other economies in the region. i ’ m not sure we have the full picture yet, but let me give you my perspective on the causes of the crisis and where we go from here. i. how could it happen? certainly, the thai crisis did not strike out of the clear blue sky. on the contrary, there were numerous signs of a gathering storm. macroeconomic indicators pointed to substantial imbalances : substantial real exchange rate appreciation ; a marked slowdown in export growth ; a persistently large current account deficit financed increasingly by portfolio inflows, including a substantial amount of short - term capital ; and rising external debt. these problems, in turn, exposed other weaknesses in the thai economy, including substantial, unhedged foreign currency - denominated borrowing by the private sector, an inflated domestic property market, and a weak and over - exposed banking system. markets issued their own warnings in the form of declining equity prices and mounting exchange rate pressure, as doubts about the sustainability of policies grew. and as you know, the fund also stressed these problems and pressed for urgent measures in a continuous dialogue with the thai authorities. it was, of course, difficult for the authorities in thailand and elsewhere in the region to recognize, after so many years of outstanding macroeconomic performance, that serious underlying deficiencies could seriously jeopardize their track record. this certainly contributed to the delay in taking the necessary corrective action. and at last, in the absence of convincing policy action, the storm broke. we all have been troubled by developments in the thai economy, both because they have been so costly for thailand and its neighbors and because they were so preventable. but at least their origins are by and large clear. what is less evident, and therefore more unsettling to all who are trying to make sense of broader regional developments, is how the crisis spread as it did to economies such as indonesia, malaysia and the philippines, where current account deficits were generally smaller and foreign direct investment more substantial. although it may be some time yet before we have