Season 2 - Looking Back at the Asian Financial Crisis: Don Hanna on the Role of Foreign Investors in the Asian Financial Crisis - a podcast by The Federal Reserve Bank of San Francisco

In the eighth episode of our series on the Asian financial crisis, we spoke with Don Hanna, a prominent international economist who has advised investors on Asia for over three decades. Don has worked as an economist at a variety of global financial institutions and multilateral organizations and lived in the region for 16 years. He has written extensively on Asia’s economic and financial development since the crisis.

Some of the key takeaways of our conversation include:

• Foreign investors had a more nuanced view of Asia during the crisis than is commonly acknowledged. While some prominent hedge funds were famously short the Thai Baht, they had a more balanced view of other Asian economies, such as Indonesia.

 

• Investors often confuse the difference between real and nominal rates when investing in overseas markets. This can lead to insufficient risk analysis and, in the worst case, rapid outflows when investors suddenly discover the difference.

 

• While capital controls can be helpful as a country slowly liberalizes its financial system, sound regulation is arguably more important in preventing and managing crises.

 

• Since the crisis Asian economies are increasingly issuing debt in their own local currencies. This is a noteworthy development and has the potential to reduce the risks associated with currency mismatches.

 

• Financial innovation to spur productivity growth, but that innovation can create risks that are often unforeseen and perhaps unknowable in advance. Regulators have to find a balance between promoting innovation and controlling risks.

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