Book Reviews

Stephanie Griffith-Jones, Ricardo Gottschalk, and Jacques Cailloux, (Eds.) International Capital Flows In Calm and Turbulent Times: The Need For New International Architecture (University of Michigan Press, 2003)

Reviewed by Jonathan Lemco

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Following the Asian Financial Crisis of 1997-98, there have been several efforts to explain the root causes of the event, and the lessons we might learn from it. In fact, an excellent web sight maintained by New York University Stern Business School professor, Nouriel Roubini, offers a daily chronicle of the causes and consequences of the crisis, and the various strategies devised to reduce the likelihood of a re-occurrence.

In this edited volume, Griffith-Jones, Gottschalk, Cailloux and their contributors offer an overview of the crisis, a discussion of two other troubled economies at the time (Brazil and the Czech Republic), and a consideration of the various current proposals for a new “international financial architecture”. By comparison to most edited volumes, this one is more coherent and comprehensive. It is also well written and fairly jargon-free. But we would stress at the outset that it does not cover much new ground either, and would be most appropriate for a senior undergraduate or first-year graduate course in international finance or economics.

Much of the volume is devoted to a review of the apparent causes and implications of the financial crisis in Thailand, Malaysia, Indonesia, and Korea, as well as Brazil and the Czech Republic. Particular attention is devoted to the role of banks in lending, and mutual funds in investing in the region in the late 1990s. This is fine as far as it goes. The authors come to the reasonable conclusion that the Malaysian policy of imposing capital and currency controls resulted in mixed results overall, and the fundamental strength of the Korean financial system allowed it to recover fairly rapidly. A great deal of attention is devoted to the relative merit of maintaining substantial official reserves, given the costs involved. But there is agreement that as a preventative measure, greater use should be made of both private and official contingency credit lines. Also, these funds should be made available before, rather than after, official reserves reach low levels.

The various articles in this book make the reasonable case that high savings and investment rates do not prevent a country from suffering a balance of payments crisis.

In fact, great deal of attention in the book is devoted to the risks associated with contagion. That is well and good, but we think that few strategies are suggested in this volume to deal with this terrible problem. Further, little attention is devoted to the moral hazard debate, which we think is central to investor perceptions of the crisis.

On the other hand, the authors argue convincingly that better regulatory measures are key to avoiding future crisis. Most notably, they make the case that better international cooperation is required to reduce the risks of future crises.

This is a solid overview of the Asian crisis and its aftermath. It deserves to be read by scholars in the field. But this will not be the definitive work on the topic.