Financial Crises of Latin America and East Asia: A Comparison

Abstract

There are similarities and differences between the Latin American and East Asian Crises. The economies of the regions had displayed a robust performance before the crisis. There were massive foreign capital inflows in both the regions before the crisis. The massive inter-bank credit had played a major funding role in East Asia whereas the bank credit went to public and publicly guaranteed projects in Latin America. The Latin American countries did not use the borrowing to develop resources, especially export industries adequate for furture debt servicing. The foreign borrowings were used to cover current account deficits. There were also used to cover the huge losses of public sector units. In East Asia, a substantial part of the capital was channelled to unproductive and high-risk ventures such as real estate. Many property owners artificially inflated teh value of their assets and kept borrowing against them and most real estate companies had a poor cash flow.