The Asian financial crisis of 1997-98 shook the foundations of the global economy and what began as a localised currency crisis soon engulfed the entire Asian region. This book explores what went wrong and how did the Asian economies long considered 'miracles' respond, among other things. The combined effects of growing unemployment, rising inflation, and the absence of a meaningful social safety-net system, pushed large numbers of displaced workers and their families into poverty. Resolving Thailand's notorious non-performing loans problem will depend on the fortunes of the country's real economy, and on the success of Thai Asset Management Corporation (TAMC). Under International Monetary Fund's (IMF) oversight, the Indonesian government has also taken steps to deal with the massive debt problem. After Indonesian Debt Restructuring Agency's (INDRA) failure, the Indonesian government passed the Company Bankruptcy and Debt Restructuring and/or Rehabilitation Act to facilitate reorganization of illiquid, but financially viable companies. Economic reforms in Korea were started by Kim Dae-Jung. the partial convertibility of the Renminbi (RMB), not being heavy burdened with short-term debt liabilities, and rapid foreign trade explains China's remarkable immunity to the "Asian flu". The proposed sovereign debt restructuring mechanism (SDRM) (modeled on corporate bankruptcy law) would allow countries to seek legal protection from creditors that stand in the way of restructuring, and in exchange debtors would have to negotiate with their creditors in good faith.
The Asian ﬁnancial crisis
The domino that did not fall:
why China survived
the ﬁnancial crisis
When the ﬁnancial crisis unexpectedly hit the high-performing East and
Southeast Asian economies in mid-1997, it was widely believed that the
People’s Republic of China (PRC) would be the next domino to fall. China’s
extensive intra-regional trade and investment linkages with the rest of Asia,
and the fact that the Chinese economy suffers from many of the same debilitating structural problems that long plagued (and ultimately did incalculable damage) to the
the fall of the won resulted in further competitive devaluation throughout
The Asian ﬁnancial crisis
Hong Kong (SAR)
Changes in real GDP (%)
Source: World Bank (2000).
East Asia. Faced with such mounting problems, the Korean government
initially approached Japan for ﬁnancial aid, but the request was turned
Post-crisis Asia – economic recovery, September 11, 2001 and the challenges ahead
Shalendra D. Sharma
to investment grade.
The recovery in Hong Kong, China has been equally impressive. The
ﬁrst-quarter growth in 2000 was 14.3 per cent, followed by 10.8 per cent in
the second quarter. GDP growth in Singapore of 5.4 per cent in 1999 was
partly due to rising productivity levels. Moreover, Singapore experienced a
rapid growth of its information technology industry – no doubt beneﬁting
from the government’s policy of transforming the island republic into a
“wired” economy. Malaysia, the Philippines and Thailand grew at 5.4,
3.2 and 5.2 per cent respectively in the ﬁrst
enabled Indonesia to compete successfully with producers of labor-intensive manufactures in the region, including China.5 Finally, Bank Indonesia had substantially increased its stocks of international
reserves. Indeed, international reserves, both in absolute terms and in months
of merchandise imports, were comfortable and rising just prior to the crisis.
The external debt to GDP ratio was gradually declining, and was appreciably lower than during the difﬁcult adjustment period of the mid-1980s.
And, with the exception of 1990, Indonesia had an excess of private
-up of unhedged foreign-currency positions.
Thus, it is argued that regulating short-term capital inﬂows – on the
basis of prudential requirements on ﬁnancial institutions – and regaining
maneuvering room for monetary policy is highly beneﬁcial. Speciﬁcally, it is
often pointed out that Asian economies that did not experience a severe
crisis during the Asian crisis had controls on capital ﬂows. For example,
China had extensive capital controls. Singapore had not internationalized its
currency, given the restrictions on the usage of the Singaporean dollar and
from an annual growth rate of 14 per cent in
1995 to 10 per cent in 1996. Growth in manufacturing sales declined from
20 per cent in 1995 to 10 per cent in 1996. More troubling, Korea’s export
engine slowed down signiﬁcantly owing to its deteriorating international
competitiveness, and to the currency devaluation by China and Japan –
Korea’s major competitors in the export market. In addition, with wage
increases rapidly outstripping productivity increases, Korea simply could
not effectively compete against Japan for high-valued products, and against
simple production. The sector
encompassed four types of technologies: resource-based (food processing),
low (textiles, footwear, leather and plastics), medium (the automotive industry), and high (complex electronic and electrical products). Between 1985
and 1996, the share in exports of products manufactured using medium and
high technology rose from among the lowest in the region (20 per cent) to
the highest (50 per cent). Thailand’s medium- and high-technology product
export shares exceeded those of China, Hong Kong and Indonesia.
What explains the change in the
goods reached their final destination, were no longer readily available. The credit markets froze. This was one of the reasons for the vast reduction in global trade. At the peak of the crisis, in early 2009, exports fell on a year-to year basis by 30 per cent in China and Germany, and by 37 per cent and 45 per cent in Singapore and Japan. The Lehman bankruptcy did not cause the financial crisis, but it was a significant trigger, leading to widespread fear that the global financial system was about to collapse, bringing financial ruin in its wake. It is only as 2009
writings were before capitalism emerged as a recognisable economic system.
In The Wealth of Nations, Smith built on these ideas and specialised them
to the market economy he saw as working in Great Britain. He ascribed the
backwardness of countries like eighteenth-century China largely to the vulnerability of possessions to thieves or simply to being confiscated by those in
power. To have an incentive to produce for the market, craftsmen needed to
be confident that they would reap what they sowed. Trade required contracts
in which the traders had confidence, and that