Avoiding Breakdown: Asia's Crisis Demands New Inte

NEW YORK: The international financial system is suffering a systemic breakdown, but we are unwilling to acknowledge it. The abandonment of fixed exchange rate regimes in south-east Asia touched off an unraveling process that has exceeded everyone's worst fears, including my own. So far the large bail-out programed implemented by the International Monetary Fund have not worked.

Lending by the international financial institutions can never replace lending by the private sector. The rescue packages are supposed to do their work by re-establishing private sector confidence. Unfortunately, the currencies of the debtor countries have continued to depreciate, aggravating their debt problems and further undermining confidence.

The countries concerned were over-indebted to start with. The decline in their currencies, coupled with the drastic rise in interest rates, has rendered the debt burden even more crushing.

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