1997 1998

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1997 - 1998
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Economic success

• Annual GDP growth in the ASEAN-5 (Indonesia,
  Malaysia, the Philippines, Singapore, and
  Thailand) averaged close to 8 over the decade
  before the crisis
• Almost half of total capital inflows to
  developing countries
  
• nearly 100 billion in 1996
• inflation unemployment rates both low

3
Ramifications

• Negative consequences
• Environmental degradation
• growing inequality between rich and poor
• rampant corruption
• social malaise
• Significant and real benefits
• great majority of the peoples living standard
• have not been erased by the crisis

4
Weaknesses in financial system

• inadequate financial sector supervision
• poor assessment and management of financial risk
• growth of bad loans
• state-directed lending
• relatively fixed exchange rates
• violent asset price cycles
• property boom bubbles

5
Weaknesses in financial system

• Large amounts of short-term international
  capital, denominated in foreign currency

6
Corruption

• Transparency Internationals 1999 survey of
  corruption
  
• Singapore 7th
• Malaysia 31st
• South Korea 50th
• Philippines 54th crisis countries
• Thailand 68th
• Indonesia 96th

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Diary of the crisis I
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Diary of the crisis II
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The cause of capital outflows

• Bank failure in Thailand
• Corporate failure in Korea
• Political uncertainty due to the potential for a
  change in government in Korea, Thailand, the
  Philippines, and Indonesia
  
• net outflow of 105b from Thailand, Malaysia,
  South Korea, and the Philippines between 1996 and
  1997

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The cause of capital outflows

• Contagion effects hit Malaysia, the Philippines
  and Indonesia
  
• The IMFs intervention actually helped to incite
  panic

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Causes of financial crisis

• macroeconomic imbalances
• structural deficiencies in financial sector
• loss of market confidence
• rising political risk

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IMF's immediate response

• Help Indonesia, Korea, and Thailand arrange
  programs of economic stabilization and reform
  
• Approve IMF financial support for reform programs
  in Indonesia, Korea, and Thailand

13
IMFs immediate response

• Consult with other members that needed to take
  policy steps toward off the contagion effect

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(No Transcript)
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Asian programs

• comprehensive reform of financial systems
• closure of unviable financial institutions
• associated write down of shareholders' capital
• recapitalization of undercapitalized
  institutions
  
• close supervision of weak institutions
• increased potential for foreign participation in
  domestic financial systems

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Reforms in governance

• break the close links between business and
  governments
  
• ensure that the integration of the national
  economy with international financial markets is
  properly segmented

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Real GDP Growth ()
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Inflation rate ()
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GDP growth rate ()
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Impact on Japan
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Impact on World
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Three schools of thought
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Three schools of thought

• Revisionist developmental state
• Market must be mediated, regulated and guided by
  the state
  
• Culturalist
• Asian values
• Culture context of East Asia explains the
  miracle
  

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Recovery from the Crisis
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Lessons from the Crisis

• Better information
• Regulation and restraint
• Controlling capital flows

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International Organizations

• Authority vis-à-vis sovereign governments
• Access to information
• Risk of creating a crisis
• Globalization and interdependence