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 7 Conclusion: post-crisis Asia – economic recovery, September 11, 2001 and the challenges ahead To the extent that Asia is recovering, no one can claim the credit. The amazing thing to me – if you leave Indonesia out – is how similar the performances are, regardless of the policies. Korea took the IMF’s advice and it’s bouncing back. Thailand took the IMF’s advice and it’s starting to come back. Malaysia defied the IMF and did everything the IMF told it not to – it’s coming back fast. Everybody’s contemplating success for their
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
The Asian financial crisis 6 Beyond the Asian crisis: the evolving international financial architecture We face a world of crisis. If Hong Kong, with its sound fundamentals and prudent financial management, can be brought to the brink of systemic breakdown by aggressive cross-border speculation, then something must be wrong with the world financial order (Joseph Yam, chief executive of the Hong Kong Monetary Authority, January 5, 1999).1 Shortly after the Mexican peso crisis, the G-7 countries launched an effort to strengthen the international financial system
The Asian financial crisis 2 Thailand: crisis, reform and recovery During the period of economic growth, we were too complacent. In good times we forgot many important truths and neglected many important tasks; we opened up our economy, but our stated plans to pursue discipline were not followed up; we attracted massive flows of cheap foreign capital, which we did not always spend or invest with enough prudence . . . we did not examine the fundamentals of our politics and governance or tackle issues such as bureaucratic inefficiency, lack of transparency and lack
experienced the most severe economic collapse recorded for any country in a single year since the Great Depression of the 1930s. What happened? Why did Indonesia (and the other high-performing Asian economies) collapse like hollow dominoes? In the numerous post-mortems that have followed, analysts have identified a number of related factors behind the region’s dramatic reversal of fortune. In the case of Indonesia, 123 The Asian financial crisis the variable that soon acquired particular salience was “crony capitalism.” Initially popularized by The Economist (1998), the term
sudden collapse of the Mexican peso in December 1994, and more recently, the Asian financial crisis that was set off when the Bank of Thailand devalued the baht on July 2, 1997.1 The unexpected meltdown of the Thai economy and the contagion (the so-called Asian flu) spread with unprecedented ferocity, and, by the end of August 1997, the currencies of three of Thailand’s neighbors, Malaysia, Indonesia and the Philippines, had all been devalued substantially (see Table 1.1), despite vigorous efforts by these governments to stop their currencies from falling.2 During
The Asian financial crisis 4 Korea: crisis, reform and recovery We don’t know whether we would go bankrupt tomorrow or the day after tomorrow. I can’t sleep since I was briefed. I am totally flabbergasted . . . This is the bottom. It’s a matter of one month, no, even one day. I just can’t understand how the situation came to this (President-elect Kim Dae-Jung, December 23, 1997).1 In the 1950s, Korea was among the poorest countries in the world, with a per capita income of under US$100. In per capita terms, this placed the country below Haiti, Ethiopia, Peru
has achieved very little for their economies and has, in many cases, impoverished people even further. Moreover, democratic transition in South Korea and Taiwan has now occurred, accelerated in its last phase by the Asian financial crisis of 1997–98 (which also initiated democratic transition in Indonesia). This revealed that the structures of economic management created under authoritarian rule – which were so successful in the initial phase of industrialization – were no longer suitable for managing mature and globally-integrated high-tech economies. Exposure of
Fuld sat there in my living room and said, “You have our word. It will be done”.’ 7 Lehman beat Goldman Sachs to the deal, earning $20m. as the fee. During that year, Walsh made other important deals, such as the sale of the Chrysler and Woolworth Buildings. He was to continue with deals of that nature, ignoring the fall in commercial real estate prices until 2008. Fuld successfully steered his company through the Asian financial crisis, the collapse of Long Term Capital Management and 9/11, when Lehman lost its headquarters but almost all of