A REGIONAL COOPERATION TO SUPPORT FINANCIAL CRISIS MANAGEMENT AND PREVENTION: AN APPLICATION OF A MODEL WITH UNCERTAINTY AND FEEDBACK INFLUENCES

Abstract

Managing financial sector under a liberalized system is always difficult; it faces a risk of financial crisis. Financial managers in most emerging markets, be it in the corporate, banking or public sector, have experienced such a challenge, and those in East Asia have learned the hard lesson during the 1997–98 financial crisis. Although efforts have been made to restructure the domestic financial sector by imposing a better risk analysis, in a world of free capital flows there is no guarantee that the system can be totally impervious to a crisis. This implies that financial managers will continue to face a major challenge in terms of how to manage and prevent a financial catastrophe. They have given a particular attention to a possible cooperation with one another. In the case of East Asia, this will lead to the formation of a Regional Financial Arrangement (RFA). This study analyzes this process by focusing on the search for a particular form of RFA that would enable financial managers to better deal with the challenge of a crisis and prevent it whenever possible. Given the fact that the issue and the process of forming a regional cooperation/arrangement involves not only economic considerations but also political factors and other intangibles, a specific model known as the Analytic Network Process (ANP) is employed. It is revealed that financial managers and policy makers alike should not only consider the benefits and costs of each alternative form of RFA, but also the possible risks and opportunities that may arise. The extent to which financial managers will be able to cope with the challenge of a financial crisis depends on all these factors.