ABSTRACT
Second, Stiglitz argues that the evidence indicates that “all too often capital account liberalization represents risk without a reward” (ibid.). Stiglitz stresses that this conclusion is derived “not just by carefully looking at what happened in the region, but by looking at what happened in the almost one hundred other economic crises of the last quarter century” (ibid.). “Even when countries have strong banks, a mature stock market, and other institutions that many of the Asian countries did not have, it can impose enormous risks”, he argues (ibid.). In fact, there is little reason to believe, he argues, that any country “could have withstood the sudden change in investor sentiment” (ibid.). As part of his account of the risks involved in capital account liberalization, Stiglitz gives an example of the substantial fi nancial interest an international investor has in currency speculation in this regime:
Assume a speculator goes to a Thai bank, borrows 24 billion baht, which, at the original exchange rate, can be converted into $1 billion. A week later the exchange rate falls; instead of there being 24 baht to the dollar, there are now 40 baht to the dollar. He takes $600 million, converting it back into baht, getting 24 million baht to repay the loan. The remaining $400 million is his profi t-a tidy return for one week’s work, and the investment of little of his own money (Stiglitz 2002: 95).
