ed credit, to public risk-sharing. Some interventions have an economic rationale---externalities or other market failures. But as with any other interventions the question is whether they can be effective taking into account possible government failures. And as elsewhere in the investment climate, government policy approaches need to navigate the heterogeneous and selfinterested requests of firms, and the inevitable pressures for rent-seeking. 8.4 This chapter begins by examining some of the general lessons of experience in undertaking selective interventions. It then looks at experience and emerging practices aimed at integrating the informal and rural economies, unleashing small and medium enterprises, taking advantage of international openness, and climbing the technology ladder. The allure ---and traps ---of selective interventions 8.5 If specific activities or industries that are sure to deliver strong benefits could be identified and targeted cost-effectively, growth might be i

ainable growth. It also draws policy lessons for managing corporate and financial distress. The chapter reaches the following conclusions: . The ongoing recovery is still fragile and uneven. The externally triggered liquidity crisis during the second half of 1997 indiscriminately submerged both strong and weak producers and financiers. The rising tide is lifting the strong, especially those benefiting from trade growth in electronics products, but the financially weak continue to struggle on account of both crisis-induced and long standing vulnerabilities. . Without vigorous corporate and financial restructuring, the return to sustainable growth will likely take longer, the fiscal costs of the crisis could rise, and the economies will remain vulnerable to new external and internal shocks. Weak firms in East Asia operated on thin margins in the years leading up to the crisis, and their inability to pay interest following the onset of the crisis has added to their debt burden. Such

Up until the recent crisis, the Southeast Asian region had been regarded as one of the most dynamic regions in the global economy. Their industrial structures have undergone a process of adjustment into more capital-intensive and technologically sophisticated manufacturing sectors. These adjustments created intra-regional flows of foreign direct investment (FDI) followed by the expansion of capital and intermediate goods intrafirm and intra-industry trade among regional economies. The paper argues that globalization and openness are not entirely responsible for the recent Asian crisis. It can be argued, however, that financial and capital-account liberalization was too rapid because domestic institutional capacities were inadequate and unable to cope with the influx of capital. Keywords: East-Asian crisis, globalization, lessons for other LDCs.