Introduction

The most striking feature of the present international financial system in the globalised world is financial liberalisation. A trend toward the global liberalisation of financial systems became widespread in the 1990s, including in developing countries (Ouattara 1998; Siamwalla 2000). According to Hallwood and MacDonald (2000), the purpose of financial liberalisation is to detach the financial sector from its anchorage in the domestic economy and to make it a part of the international financial sector. In other words, the purpose of financial sector reforms is to make the domestic financial sector integrated into the globalised financial system. Brooks and Oh (1999) refer to financial liberalisation as the progressive allocation of resources according to market forces rather than personal relationships or government direction, with the aim of strengthening the competitiveness of the financial system. In his study, Vichyanond (2000a) regards financial liberalisation as the process of opening up a domestic financial system to increasing international capital with the aim of fostering economic growth. According to Alba et al. (1999) and Queisser (1999), financial liberalisation is the process by which individual countries liberalise their capital account by renouncing any controls, taxes, subsidies, or restrictions that affect capital account transactions between residents and non-residents. In principle, then, financial liberalisation is the process whereby a country seeks to increase its competitiveness and growth by freeing up its financial system for international capital through reforming trade, foreign exchange policy, capital controls and the domestic financial market.

The problem this book will address is how financial liberalisation contributed to the financial crisis with specific reference to Thailand, focusing particularly on four main issues: the sequencing of financial liberalisation; the removal of capital controls; the choice of exchange rate policy; and issues arising from asymmetric information. The book will assess and analyse the contribution of financial liberalisation to this crisis.

This introductory chapter lays the foundation of the book. Section 1.2 summarises different views on the financial crisis in the context of international crises and the Asian crisis in particular. Section 1.3 describes the problem and objective of this book. Finally, Section 1.4 presents the structure of the book.