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Crisis, reform and recovery

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.

Why China survived the financial crisis
Shalendra D. Sharma

The Asian financial crisis 5 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

in The Asian financial crisis
Open Access (free)
Issues, debates and an overview of the crisis
Shalendra D. Sharma

, the fall of the won resulted in further competitive devaluation throughout 3 The Asian financial crisis Table 1.2 Indonesia Korea Malaysia Philippines Singapore Thailand China Hong Kong (SAR) Taiwan Japan USA Changes in real GDP (%) 1996 1997 1998 8.0 6.8 8.6 5.8 7.6 5.5 9.6 4.5 5.7 5.0 3.7 4.5 5.0 7.5 5.2 8.4 −1.3 8.8 5.3 6.8 1.6 4.5 −13.7 −5.8 −7.5 −0.5 0.4 −10.0 7.8 −5.1 4.8 −2.5 4.3 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 down

in The Asian financial crisis
Open Access (free)
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

in The Asian financial crisis
Open Access (free)
Crisis, reform and recovery
Shalendra D. Sharma

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

in The Asian financial crisis
Open Access (free)
The evolving international financial architecture
Shalendra D. Sharma

-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 on

in The Asian financial crisis
Open Access (free)
Crisis, reform and recovery
Shalendra D. Sharma

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 212 Korea

in The Asian financial crisis
Open Access (free)
Crisis, reform and recovery
Shalendra D. Sharma

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

in The Asian financial crisis
Open Access (free)
Oonagh McDonald

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

in Lehman Brothers
Richard R. Nelson

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

in Market relations and the competitive process