The global financial crisis that began with the collapse of the Thai baht in mid-1997 was fundamentally one of information mismanagement--that is, banks failed and markets collapsed mainly because crucial information was not collected and distributed to investors. Once burned, those same investors have understandably proved reluctant to return to markets where they mistrust the available financial data and, more generally, the credibility of host governments. To lure back investment, armies of financial specialists have been dispatched to Asia by the International Monetary Fund (IMF) and other multilateral institutions to establish basic standards of accounting and disclosure requirements for banks and firms.
But what these specialists have discovered is that the mismanagement they seek to remedy is often the product not of inefficiency but of direct and willful government action. More precisely, governments in Asia routinely misuse financial information for corrupt purposes or unreasonable taxation. Firms then respond by withholding this information, thereby reducing potential trade and investment. If a firm in China, for example, were to maintain the same standards of accounting as its counterparts in the United States, it would soon find itself subjected to a wide range of capricious interventions by state officials.