Charles Enoch

Financial Sector Crisis and Restructuring; Lessons from Asia: Lessons from Asia

This paper reviews the policy responses of Indonesia, Korea, and Thailand to the Asian crisis that erupted in 1997 and compares the actions of these three countries with those of Malaysia and the Philippines, which were buffeted by the crisis. Although work is still under way in all the affected countries, and thus any judgements are necessarily tentative, important lessons can be learned from the various experience of the last two years.

Indonesia: Anatomy of a Banking Crisis Two Years of Living Dangerously, 1997-99

This study looks at the first two years of the banking crisis that erupted in Indonesia in late 1997. It finds that the banking sector was weak at the outset, and that governance problems intensified the crisis and seriously delayed its resolution. Although a strategy was put in place over the initial months, protracted delays in implementation led to an explosion in the costs of resolution. By end-1999, the critical elements to reconstruct the banking system were in place, and the political transition seemed completed; but, in a continuing unsettled environment, the new authorities still faced daunting challenges.

Transparency and Ambiguity in Central Bank Safety Net Operations

To mitigate the risks of contagion from problems arising in the banking sector, many countries operate some form of banking sector safety net. Such safety nets generally involve a judicious mixture of transparency and ambiguity. This ambiguity may be important to counter moral hazard effects but may lead to excessive forbearance in the face of banking problems. While the scope for ambiguity has been declining, some ambiguity in the handling of individual institutions remains. In any case, ex post transparency is essential for reviewing the propriety of any assistance and preserving the authorities’ future reputation and policy credibility.

Banking Crises and Bank Resolution: Experiences in Some Transition Economies

It has been estimated that in the past 20 years over half the members of the IMF have experienced banking crises.2 Among these, much attention has been paid to the Nordic banking crises of the early 1990s;3 more recently the focus has been on the crises that hit several Asian countries in the late 1990s.4 Between these two well-recorded episodes was a set of major banking crises that critically affected economic developments in a further group of countries: the transition economies. During the 1990s, most of the countries that were undertaking the difficult transition from a centrally planned to a market economy experienced banking crises of varying severity. These crises reflected in part factors specific to countries emerging from state socialism. Banks in transition economies were characterized by linkages to loss-making public and private enterprises, insider lending, absence of sound prudential practices, and legacy problems from the earlier regimes in their countries, all of which characteristics helped undermine the soundness of banking systems in these countries.5 To a surprising extent, however, the experiences of the transition economies reflected factors common to banking crises across all types of economies—transition economies were clearly more vulnerable than others to the emergence of banking problems, but overall the factors contributing to systematic banking sector problems in these countries had a great deal in common with those found elsewhere. Similarly, the lessons that can be learned, in particular on how the authorities handled the crises, may also be of wider applicability.

Some Issues in the Design of Monetary Instruments for the Operation of European Economic and Monetary Union

The European Monetary Institute has been working with national central banks of the European Union (EU) to prepare instruments for the operation of monetary policy in Stage 3 of European Economic and Monetary Union. Several publications describing the proposed arrangements have been issued. This paper briefly summarizes the arrangements and identifies some areas in which important decisions still have to be made or refinements introduced—including the choice of counterparties in fine-tuning open market operations; the design of reserve requirements; the signaling function of monetary operations; and payment system relationships with non-EMU participants in the EU.