Responding to economic crises: Policy alternatives for equitable recovery and development

While economic crises are becoming more frequent and severe, our experience in East Asia has demonstrated how the international response to these cris es remains inadequate. Appropriate policy responses to economic crises enta il three essential dimensions: first, the maintenance of full employment an d economic stability through macroeconomic policy; second, complementary st ructural policy aimed at restoring confidence; and finally, a robust social safety net to mitigate the adverse and potentially long-term effects of ec onomic downturns. A suitable crisis response requires that policy-makers re cognize the critical role of financial markets and the existence of time la gs. Suitable policy responses should consider not only an individual econom y's ability to absorb shocks, but also the asymmetries and nonlinearities o f alternative policies. As we thus seek to improve our macroeconomic and st ructural policies for the future prevention and mitigation of crises, it is critical that we bear in mind the protection of the most vulnerable segmen ts of society from the crises that will inevitably occur.