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    The Asian Financial Crisis

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    ibrahim javed
    The document discusses the Asian financial crisis that began in 1997. It provides statistics showing large declines in currency and stock market values in several Asian countries in the second half of 1997. It also notes that forecasts of 1998 economic growth in the region have been sharply reduced since the crisis began, with some countries like Indonesia and Thailand now expected to experience recessions rather than growth. The crisis has spread impact beyond Asia, reducing global growth forecasts and exacerbating Japan's existing economic problems.

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    The Asian Financial Crisis

    Uploaded by

    ibrahim javed
    14 views4 pages
    The document discusses the Asian financial crisis that began in 1997. It provides statistics showing large declines in currency and stock market values in several Asian countries in the second half of 1997. It also notes that forecasts of 1998 economic growth in the region have been sharply reduced since the crisis began, with some countries like Indonesia and Thailand now expected to experience recessions rather than growth. The crisis has spread impact beyond Asia, reducing global growth forecasts and exacerbating Japan's existing economic problems.

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    The document discusses the Asian financial crisis that began in 1997. It provides statistics showing large declines in currency and stock market values in several Asian countries in the second half of 1997. It also notes that forecasts of 1998 economic growth in the region have been sharply reduced since the crisis began, with some countries like Indonesia and Thailand now expected to experience recessions rather than growth. The crisis has spread impact beyond Asia, reducing global growth forecasts and exacerbating Japan's existing economic problems.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    14 views4 pages

    The Asian Financial Crisis

    Uploaded by

    ibrahim javed
    The document discusses the Asian financial crisis that began in 1997. It provides statistics showing large declines in currency and stock market values in several Asian countries in the second half of 1997. It also notes that forecasts of 1998 economic growth in the region have been sharply reduced since the crisis began, with some countries like Indonesia and Thailand now expected to experience recessions rather than growth. The crisis has spread impact beyond Asia, reducing global growth forecasts and exacerbating Japan's existing economic problems.

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    © All Rights Reserved
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    of 4

    MORRIS GOLDSTEIN

    THE ASIAN
    FINANCIAL CRISIS
    Causes, Cures, and
    Systemic ImplicaUons

    INSTITUTE FOR INTERNATIONAL ECONOMICS


    Washington, DC
    June 1998

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    1
    Introduction

    The turmoil that has rocked Asian foreign-exchange and equity markets
    since June 1997 and that has spread far afield is the third major currency
    crisis of the 1990s. Its two predecessors were the crisis in the European
    Monetary System (EMS) of 1992-93 and Jhe Mexican peso crisis of
    1994-95.
    At the meeting of heads of state of the Asia Pacific Economic Coopera-
    tion (APEC) forum in Vancouver in November 1997, US President Bill
    Clinton first characterized the Asian crisis as "a few small glitches in the
    road"-a description that has given way to less rosy scenarios as evidence
    of the depth and breadth of the crisis has accumulated. As shown in
    tables 1 and 2, currency and equity markets in emerging Asia recorded
    huge falls-on the order of 30 to 50 percent-in the second half of 1997
    (as measured from the end of June, just before the floating of the Thai
    baht). Developments during the first four months of 1998 have been
    mixed: on the positive side, there have been some rebounds in exchange
    rates in Thailand and South Korea and in equity prices in the Philippines;
    in the negative column, the downward slide in the Indonesian rupiah
    has accelerated, and even where currency and equity prices have
    rebounded, the cumulative decline over the crisis period as a whole
    remains very large.
    Moreover, forecasts of 1998 economic growth in the region-which
    stood in the 6 to 8 percent neighborhood prior to the crisis-have been
    sharply marked down since then (see table 3).' Thailand, Indonesia, and

    1. Goldstein and Hawkins (1998) show that these downward revisions of 1998 growth
    forecasts for the Asian emerging economies represent some of the largest downward ｲ･ｶｩｾ
    sians (over a 6-.month period) ,?f the 19905.

    1
    Table 2 Stock markets, 30 June 1997 to 8 May 1998
    Percentage. Cumulative:
    change Percentage change
    6/30/97- change' 6130197-
    6130197 12131/97 12/31/97 5/8198 1/1/98-6/8198 5/8/98
    Thailand. 527.3 372.7 -29.3 386.4 3.7 -26.7.
    Malaysia 1,077.3 594.4 -44.8 580.1 -2.4 -46.2.
    Indcnesia 725.0 401.7' -44.6 434.7 8.2 -40.0
    Philippines 2,809.0 1,869.2' -33.5 2,210.0 18.2 -21.3
    Hong Kong 15,197.0 10,722.8 -29.4 10,060.4 -6.2 -33.8
    Korea, South 745.4 376.3' -49.5 373.0 -0.9 -50.0
    Taiwan 9,030.0 8,187.3 -9.3. 8,210.8 0.3 -9.1
    Singapore 1,988.0 1,529.8 -23.0. 1,420.8 -7.1 -28.5
    Note: All stock market indices are local indices. The Hang Sang index Is used for Hong Kong
    and the Straits Times for Singapore.
    a. As of 12130/97.
    b. As of 12129/97.
    Sources: Bloomberg; Financial Times .(various issues).

    Table 3 Real GOP growth and growth forecasts, 1996-98 (percentages)


    IMF forecasts Consensus forecasts
    1998 1998 Change 1998 1998 Change In
    (as of (as of in 1998 (0. of (as of 1998
    1996 1997 May 97) April 98) foroco.t Juno 97) April 98) forecast
    Indonesia 8.0 5.0 7.4 -5.0 -12.4 7.6 -6.3 -13.9
    Thailand 5.5 -0.4 7.0 -3.1 -10.1 5.9 -4.1 -10.0
    Korea, South 7.1 5.5 6.3 -0.8 -7.1 6.1 -1.6 -7.7
    Malaysia 8.6 7.8 7.9 2.5 -5.4 8.0 1.1 -6.9
    Philippino. 5.7 5.1 6.4 2.5 -3.9 6.3 2.2 -4.1
    Singapore 6.9 7.8 6.1 3.5 -2.6 7.3 2.7 -4.6
    Hong Kong 4.9 5.3 5.0 3.0 -2.0 5.5 3.0 -2.5
    China 9.7 8.8 8.8 7.0 -1.8 10.4 7.8 -2.6
    Talwan 5.7 6.9 6.3 5.0 -1.3 6.5 5.9 -0.6
    Sources: IMF, World Economio Outlook (various Issues); Goldstein and Hawkins (199B);
    Consensus Economics, Inc., Asia-Pacific Consensus Forecasts (June 1997 and April 1998).

    South Korea are now expected to suffer recessions this year, and growth
    in Malaysia and the Philippines is likely to be only about a third of what
    was anticipated prior to the crisis. Excluding China, growth in emerging
    Asia is now expected to be only marginally positive (1 to 2 percent)
    this year.
    Moving outside the region, it becomes more hazardous to link changes
    in 1998 growth forecasts solely to the effects of the Asian crisis, because
    2 other factors have also changed. Nevertheless, it is relevant to note that

    I.'.............., '......,...... , ,..


    t f "Halifax II" reforms to strengthen
    In chapter 4, I put forward a se 0R bin (1998) has recently called the
    in April 1998 the International Monetary Fund (IMP) (1998b) revised its what US Treas\IrY Secretary Robert u ,,' These proposed reforms are
    1998 global growth projection to 3.1 percent-down from 4.3 percent in "international financial a.rchl:ectur:din s: (1) reducing moral hazard
    grouped under the ｦｯｬ ｷｭｾ ｾｶ･ＧＺ［ｩｴｹ togprivate debt ｲ･ｳ｣ｨ ､ｵｬｭｧｾＩ
    October 1997, and (roughly) two-thirds of that downward revision might
    be attributed to slower growth in developing Asia. Turning to growth in d brin ing more order an ex. 10 in countries and rna g
    the largest industrial countries, there is a consensus that Japan has been :'rength!ning prudential ｳｴＢＺＬ ､｡ｲ ｾ m ｬｾＺｮｴ ｾ･ standards. sooner; (3).
    hardest hit by the Asian crisis, with its impact exacerbating Japan's serious
    it more attractive for Ｚｾｴｮｵｯ｣ ｾｴ ･ｾｮｵ in international finanCIal markets,
    homegrown problems.' In the United States, the contractionary impact of improving transparency an sC osu h' and (5) shoring up risk manage-
    the Asian crisis has so far been more subdued, and the IMP's latest (1998b) 4 iving IMF surveillance o:.'0r<; punc ,
    forecast for 1998 growth is in fact now higher than itwas before the crisis.' ＨｭＩ･ｾｴ in global financial inStltutl°lns. from the crisis and offers some
    My aim in this book is threefold: first, to explain how theAsian financial 5 tl' s 10 esSOns
    Finally, chapter ouk ｭｾ t the future role of the lMF.
    crisis arose and spread; second, to outline the kinds of corrective policy brief concluding remar s a ou
    measures and reforms that would help to end the crisis; and third, to
    suggest a package of improvements in the international framework for
    crisis preventidn and crisis management.
    Chapter 2 discusses the three main interrelated origins 9f the crisis,
    namely: financial-sector weaknesses in Asian emerging economies cum easy
    global liquidity conditions; mounting concerns about external-sector prob-
    lems in these economies; and contagion from Thailand-first to three larger
    economies of the Association of Southeast Asian Nations (ASEAN-4)
    (Indonesia, Malaysia, and the Philippines), then to North Asia (South
    Korea, Taiwan, Hong Kong, and Japan), and finally to other countries
    (ranging from Brazil to Russia and, more briefly, to equity markets in
    some major industrial countries). .
    Chapter 3 turns to proposals for fixing the crisis. Here, I take up restruc-
    turing and reform of financial sectors and prudential supervision in the
    ASEAN-4 economies and South Korea, exchange rate policies in Asia,
    fiscal and financial'sector policies in Japan, competitive depreciation pres-
    sures facing China, and the design and effectiveness of IMP-led official
    rescue packages.

    2. IMP forecasts for 1998 growth in Japan have fallen from 2.9 percent in the May 1997
    World Economic Outlook to zero in the April 1998 edition. The IMF (I99Bb) argues that while
    the Asian crisis added to the toll, the faltering of Japan's recovery in 1997 primarily re.f)ected
    problems-of its own making, including the large withdrawal of fiscal stimulus when the
    recovery was not yet firmly established, the bad loan problem cum more generalized finan-
    cial-sectorwE!aknesses, and delays in the implementation of structural reforms. Posen (forth-
    coming 1998) comes to a similar conclusion. Liu et al. (1998) also find that Japan's real GDP
    is more adversely affected by the Asian crisis than either the United States or Europe but
    emphasize that the outcome is heavily influenced. by how one treats the depreciation of the
    yen vis-a.-vis the US, dollar and European currencies over the period and by how one
    accounts for the real absorbtion effects of exchange rate changes. As argued in chapters 2
    and 3, Japan's problems have also been an important element in the origins of the crisis . 1995 following the Mexican peso
    4 Th G-7 EconomiC Summit in Halifax, ca?ad; ｬＺｮｾ［ｯ｢｡ｬ
    and have made recovery from the regional crisis more difficult.
    financial-architecture issues.
    3. In May 1997, the IMP was projecting 1998 growth in the United States to be 2.2 percent; ' .. e paid considerable attention to SUpervlSO
    the April 1998 World Economic Outlook envisages US growth of 2.9 percent in 199B. CnslS, INTRODUCTION 5

    4 ASIAN FINANCIAL CRISIS

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