1997 - 1998

1. 1997 - 1998

2. 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 people’s 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 International’s 1999 survey of corruption • Singapore 7th • Malaysia 31st • South Korea 50th • Philippines 54th crisis countries • Thailand 68th • Indonesia 96th

7. Diary of the crisis: I

8. Diary of the crisis: II

9. 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

10. The cause of capital outflows • Contagion effects hit Malaysia, the Philippines and Indonesia • The IMF’s intervention actually helped to incite panic

11. Causes of financial crisis • macroeconomic imbalances • structural deficiencies in financial sector • loss of market confidence • rising political risk

12. 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. IMF’s immediate response • Consult with other members that needed to take policy steps toward off the contagion effect

15. 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

16. 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

17. Real GDP Growth (%)

18. Inflation rate (%)

19. GDP growth rate (%)

20. Impact on Japan

21. Impact on World

22. Three schools of thought

23. 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

24. Recovery from the Crisis

25. Lessons from the Crisis • Better information • Regulation and restraint • Controlling capital flows

26. International Organizations • Authority vis-à-vis sovereign governments • Access to information • Risk of ``creating” a crisis • Globalization and interdependence