Addressing the Global Financial Crisis required fiscal intervention on a substantial scale by governments around the world. The consequent build up of public debt, in particular its sustainability, have moved centre stage in the policy debate. If the Asia Pacific region is to continue to serve as an engine for global growth its public debt must be sustainable. The book addresses this issue for Asia Pacific as a whole as well as for three of the most dynamic economies in the region: China, India and Vietnam. The book begins with a discussion of the reasons why there is increased attention on debt related issues and outline the contents of the volume. The book also includes fiscal indicators for Developing Member Countries (DMCs) as categorized by the Asian Development Bank (ADB). Debt sustainability for these countries is assessed through extant approaches and with the most updated data sources. It also surveys the extant literature on debt sustainability, outlining the main issues related to debt sustainability and discusses the key implications for the application of debt sustainability analysis in developing Asia. The book highlights the importance of doing individual country studies in view of wide variations in definitions of public expenditure, revenues, contingent liabilities, government structures (e.g. federal), and the like as well as in the impact of debt on interest rates. It provides in-depth debt sustainability analyses of China, India and Vietnam. The book is a comprehensive analytical and empirical update of the sustainability public debt in developing Asia. It breakes new ground in that various characteristics of the sustainability that have not yet been explored in the literature which, nevertheless, are crucial to understanding it. As a consequence, the policy analysis is based on firmer footings than in the extant literature and should prove useful to graduate students, researchers as well as policymakers.

The book deals with the 1997 Asian currency crisis and analyses the causes and consequences of the crisis. The two hypotheses, fundamental and panic/herd behaviour hypotheses, which are often viewed as competing, are also examined. The first hypothesis states that fundamental imbalances triggered the Asian currency and financial crisis in 1997. The crisis occurred because the economies had deteriorating current accounts, a slow down in growth rates and short-term debt approaching a dangerous level; while the second hypothesis states that sudden shifts in market expectations and confidence were the cause of the initial financial turmoil. When the crisis erupted, it caused panic among domestic and foreign investors. The main focus of this book is to evaluate these two approaches and to examine whether there was evidence of insolvency prior to the crisis in four Asian countries namely Malaysia, Indonesia, Thailand and the Philippines. A solvency index, originally popularised by Cohen, is calculated for each country. An analysis of the trade sector is undertaken in which the dynamic OLS is employed. Subsequently, the price elasticities obtained from the export demand model together with the GDP supply elasticity are used to calculate the index. From the analysis, it appears that all countries were solvent prior to the crisis where the percentage of actual debt service paid (in 1997) was greater than the percentage that must be paid to be solvent. This suggests that further external credit could have solved the problem, as it was a matter of short-term liquidity difficulties and panic, rather than insolvency.