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.
and the primary dealer; money market funds for commercial paper; insurance companies for debt and equity securities, commercial paper, OTC derivatives and MBSs and CMBSs; and finally corporate issuers for debt, equity and OTC derivatives. Many clients and counterparties found themselves exposed to multiple Lehman Brothers entities in various legal jurisdictions, with different bankruptcy and insolvency laws and contractual protections and remedies.
Lehman Brothers International (Europe) based in London also suffered from the nightly sweep. Like
considered later in this chapter. They are: was the board capable of carrying out its duties? Did the board actually meet the corporate governance requirements?
As corporate governance in the USA (as in other countries) continues to evolve, this description of corporate governance refers only to what was in force at the time. This is not as simple a task as it might seem. The sources of corporate governance law and regulation are state corporatelaw (mainly Delaware, since over half of US publicly traded companies are incorporated there); the federal
amended the bankruptcylaws simplifying legal proceedings for corporate rehabilitation and bankruptcy ﬁling, streamlining provisions for non-viable ﬁrms to exit markets,
and improving credit bank representation during resolution. In the ﬁrst
round of ﬁnancial sector restructuring, the government committed 64 trillion won (roughly US$53 billion) in April 1998 to recapitalize ﬁnancial
institutions, pay deposit and credit claims of bankrupt institutions, and
reduce the level of non-performing loans. When most of this fund had been
exhausted by the end of 1999, the
receive par 100 when the bonds matured. However, the CDS meant that Lehman bond holders with CDSs received much more than they would have received as the recovery value, some years after the bankruptcy procedures were completed in March 2012.
Settling CDSs which refer to asset-backed securities is much more complicated. These are very different ‘insurance’ instruments from the ones in the corporate credit market. The seller of protection provides the buyer with protection covering the failure to pay off the principal by the legal date of maturity of
been numerous cases where the extent of fan equity has had clear
monetary dimensions. For example, many clubs faced with bankruptcy have
turned to their fans for financial support to keep the clubs up and running.
Plainly, there are few industries where the customers would organise a whipround to prevent a company from closing. Recognising fans as stakeholders
in this way means that issues of corporate governance take on particular
dimensions (as discussed below) and regulatory implications.
The change in corporate governance structures that has occurred as clubs
like INDRA to work it is essential to improve implementation
of the bankruptcylaw. Speciﬁcally, voluntary mechanisms for restructuring
corporate debt will have greater appeal if creditors have reasonable expectations of being able to enforce their claims against debtors speedily through
legal means, should voluntary methods fail.
The Asian ﬁnancial crisis
The failure of the INDRA plan led the Indonesian government to introduce its second and third initiatives on corporate debt restructuring, the
Jakarta Initiative and the Jakarta Initiative Task Force (JITF) in
liabilities were so large, any adjustment
in the exchange rate would cause substantial damage to balance sheets. In
particular, there was concern that large losses on unhedged foreign-currency
debt would result in a large number of corporatebankruptcies, resulting in
massive unemployment and related social problems. By early 1997 it was
also felt that tampering with the exchange-rate system under the prevailing
conditions of intense speculative pressure and eroding domestic conﬁdence
would have resulted in a run on the baht and ignited an immediate currency
crisis. The BOT
activities. They established and ran rural
enterprises and took the proﬁts to pay for expenditures and reinvestment.
Thus, increased ﬁscal incentives gave rise to a new form of state-led growth
in rural China – what Oi calls “local state corporatism.” Under this system,
local governments “treat enterprises within their administrative purview as
one component of a larger corporate whole” (Oi 1992, 99). By causing local
governments to function like a large corporation with diversiﬁed businesses
and facing fairly hard budget constraints, including bearing the risks of
potentially viable ﬁnancial institutions, often with substantial
government assistance. Further, to prevent a recurrence of the fragilities that
had led to the crisis, the program required the implementation of institutional reforms, such as instituting effective bankruptcylaws, strengthening
the regulatory framework and increasing the transparency of ﬁnancial and
corporate governance. These measures, seen by the IMF as addressing the
root causes of the crisis, were deemed critical to restoring market conﬁdence
and the resumption of sustainable growth. However, the critics