Transcript The Asian Crisis: a Perspective After Ten Years

The Asian Crisis: a
Perspective After Ten
Years
W. Max Corden
Presented by Trace Hayles
The Asian Crisis: Prelude
• 1997: Thailand, Indonesia, Malaysia, and Korea in the
midst of an investment boom
• Comprised of local savings and FDI
• Result of favorable macroeconomic policies
• 3 Forms of capital inflow that fueled boom
• FDI
• Inflow of portfolio capital into local stock markets
• Short term borrowing by local banks
The Bubble Bursts
• Catalyst: Eventual slowdown of export growth in
Thailand (20% to 0% year over year)
• 1997: Exchange Rate crisis for baht
• This triggered crises in the other three Asian Tigers
(contagion)
• Free movement of capital policies – not in place in China
and India
GDP Growth
Country
1988-95
1996
1997
1998
1999
2000
Indonesia
7.9
7.8
4.7
-13.1
0.8
4.9
Malaysia
9.4
10
7.3
-7.4
6.4
8.9
South Korea
8.1
7
4.7
-6.9
9.5
8.5
Thailand
10
5.9
-1.4
-10.5
4.4
4.8
Currency Crisis
• Outside of Malaysia, other three countries held
large amounts of $-denominated short term
debt
• With no hedging, this led to sharp depreciation
• Domestic banks exposed to both currency risk
and credit risk
Unique Crises
• Thailand: FBAR
• Indonesia: Suharto
• Korea: faster recovery from larger IMF infusions
• Malaysia: Capital outflow restrictions
Policy Response
• Domestic Interest Rates
• Bank Rescues
• Keynesian Expansion
Conclusion
• Key factor: run-up in investment, “hard landing”
after
• Recession was not inevitable, but events in
Thailand accelerated region-wide crisis