Presenting The Textbook's Case Study On East Asia: Success and Crisis'

GROUP 5
Presenting the textbook’s

case study on ‘East Asia:
Success and Crisis’
TOPIC 5
Our team
Phan Thị Thủy Nguyễn Thị Ngọc Mai Thị Nguyễn Thị
19051222 Ánh Thanh Mai Hương Mơ
19051030 19051146 19051159
Our team
Nguyễn Thị Thanh Đào Quỳnh Trang Trần Quang Bùi Thị Phương
Tâm 19051228 Minh Chi
19051204 19051332 19051037
Table of contents
I. EAST ASIA CRISIS II. LESSONS FOR
THE DEVELOPING
01 Development COUNTRIES’ CRISIS
02 Causes
03 Consequences
04 Policies response
I
EAST ASIA CRISIS
1. Development
1.1. Before the crisis
Until 1997 the countries of East Asia were

the envy of the developing world.
In 1963, South Korea launched a series of

sweeping economic reforms => The country
began a remarkable economic ascent.
South Korea's economic rise was paralleled

by that of a number of other East Asian
economies.
1.1. Before the crisis
Figure 1: Value of
gross domestic
product (GDP) of
some countries in
the period 1990-
1996
Source: World Bank

1.2. During the crisis
On July 2, 1997, the Thai

government ran out of
foreign currency. No longer
able to support its exchange
rate, the government was
forced to float the Thai baht,
which was pegged to the
U.S. dollar before.
The economies of Southeast Picture 1: Timeline of the Asian Financial Crisis

Asia are closely tied. Source: Corporate Finance Institute
1.2. During the crisis
Korea (Won) Thailand (Baht)
Following the devaluation of
the Thai baht, wave after
wave of speculation hit
other Asian currencies. One
after another in a period of
weeks the Malaysian
ringgit, Indonesian rupiah
and the Singapore dollar
were all marked sharply
lower (Charles W.L.Hill,
1999).
Figure 2: Official nominal exchange rate during 1990-1998
Source: World Bank, “World Development Indicators”, 2002
I
EAST ASIA CRISIS
2. Causes
“Asian model” structural weaknesses
The crisis has its roots in the Asian capitalist model of development:
- The long-term links between the corporations and banks lend to poor investment
decisions and over-lending to unproductive projects.
- The nature of the Asian corporations, involving extensive cross-subsidisation of

subsidiaries, and their close relationships with the banks, meant that the financial
markets did not have sufficient information about their true financial position.
Lending standards were lenient, the government's supervision and regulation of the
financial sector were weak, there was a culture of inter-connected lending, some
banks were undercapitalized, and financial safety nets were not in place.
Deregulation in the financial sector led to easy money, which caused many
speculative and bad loans to be made. It also led to large debt burdens.
Rapid Liberalization and Deregulation of Financial Markets

Dependence on Exports
The excessive dependence

on trade had made these
countries vulnerable to
currency movements.
Over production and

excess capacity led to
falling export prices.
Table 1: Export Growth and Export Shares, Selected Countries, 1990-96

Source: IMF, International Financial Statistics, Bank for International Settlements, 1997
Table 2: Debt to
The high economic
Foreign Banks and
growth of the early Foreign Exchange
1990s led to an attitude Reserves, Selected
of excessive borrowing. Crisis Countries,
1995-97.
In the boom years, Source: Bank for
speculative loans were International
awarded to firms which Settlements, IMF,
International Financial
were not credit worthy. Statistics, 1998
Excessive Borrowing and Currency

Speculation
I
EAST ASIA CRISIS
3. Consequences
Severe recession
Figure 3: Nominal GDP per capita in 1997

Source: Asian Development Bank (ADB), 2001
Severe recession
Figure 4: GNP of some Asia country affected by the crisis from 6/1997 to 7/1998
Source: School of Advanced International Studies of Johns Hopkins University
Figure 5:
Changes in
value of Asian
currencies
Inflation
from 6/1997 to
7/1998
Source: Asian
Development
Bank (ADB),
2001
The Prime Minister General of
Thailand, Yongchaiyudh, and
Political effects
the President of Indonesia

resigned.
An anti-Western sentiment
was triggered in East Asia,
especially against IMF and
George Soros.
George Soros
Global effects
Within East Asia, the bulk of investment and a significant amount of
economic weight shifted from Japan and ASEAN to China and India.
International investors became less willing to invest in and lend to

developing countries.
First, it caused a flight from emerging markets (including Russia) by
Effect on Russia
international investors. Partly this was riven by fear, and compensate for
losses in South East Asia.
Second, it caused a slump in commodity prices. Oil fell from $18 a

barrel in December 1997 to $11 a barrel by the end of 1998. This was a
severe blow to Russia, which relied on oil for nearly half its export
earnings.
I
EAST ASIA CRISIS
4. Policies response
The IMF’s economic strategy had two key components
Firstly, concentrated on
macroeconomic policy:
- Tighter monetary
policies: stabilizing the
foreign exchange
markets, including
through increases in
interest rates.
- Flexible fiscal policies:

has adapted to take
into account the impact
of the slowdown on
revenue collections,
strengthening the
social safety net and
facilitating financial
sector restructuring.
Secondly, substantial structural reform:

- Strengthening the financial sector and improving the efficiency of financial
intermediation.
- Improving the functioning of markets: breaking the links between business, banks
and government.
- Enhancing transparency with regard to the disclosure of key economic, financial
and corporate sector information.
- Strengthening the social safety net.
I
I FOR THE
LESSONS
DEVELOPING COUNTRIES’
CRISIS
Choosing the right exchange rate regime
It is perilous for a developing country to fix its exchange rate unless it has the means
and commitment to do so.
The developing countries that have successfully stabilized inflation have adopted
more flexible exchange rate systems or moved to greater flexibility quickly after an
initial period of pegging aimed at reducing inflation expectation.
The central importance of
banking
A large part of what made the Asian crisis so devastating was a currency crisis
inextricably mixed with banking and financial crises.
The collapse of many banks disrupted the economy by cutting off channels of credit,
which made it difficult for even profitable companies to stay in business. In the
future, a wise government will devote a great deal of attention to shoring up their
banking systems to minimize moral hazard, in the hope of becoming less vulnerable
to financial catastrophes.
The proper sequence of reform measures
Economic reformers in developing countries have learned the hard way the order in
which liberalization measures are taken really does matter. That truth also follows
from basic economic theory: The principle of the second best tells us that when an
economy suffers from multiple distortions, the removal of only a few may make
matters worse, not better.
The importance of contagion
A domino effect that has become known as contagion. Contagion was at work when
the crisis in Thailand, a small economy in Southeast Asia, provoked another crisis in
South Korea, a much larger economy some 7000 miles away.
EAST ASIA CRISIS
Some more lessons

Avoid large current account deficits financed through short-term, unhedged
private capital inflows.
Reforms which aim to stabilize short-term capital flows and effectively

address systematic bankruptcy should be given more weight.
Government policy will play an important role in the future. Without

government intervention to restore the economy, economic crisis can be
deep and prolonged. The cooperation between the state and other
segments of the economy should be transparent and accountable.
References
1. (2018). Khủng hoảng tài chính Đông Á 1997-1998: Nguyên nhân, diễn biến và bài học kinh nghiệm . Ho Chi
Minh City: Trường đại học Ngân hàng.
2. Andrew Berg (1999). The Asia Crisis: Causes, Policy Responses, and Outcomes. IMF Working Paper No
99/138 (Washington: International Monetary Fund).
3. Anh Tu, H. T. (2017). Châu Á 20 năm sau khủng hoảng tài chính 1997. Retrieved from Kiemsat.vn.
https://kiemsat.vn/chau-a-20-nam-sau-khung-hoang-tai-chinh-1997-47837.html
4. Bosworth, Barry. 1998. "The Asian Crisis in Context: Some Generic Aspects of Currency Crises“. Paper
prepared for the Wharton-Long Term Credit Bank Conference. Tokyo, March 10.
5. E.H.Konac (2000), The East Asian Crisis : Lessons for OIC countries, Journal of Economic Cooperation.
https://sesricdiag.blob.core.windows.net/sesric-site-blob/files/article/184.pdf
6. Hays, J. (2012, November). ASIAN FINANCIAL CRISIS IN 1997-98. Facts and Details.
http://factsanddetails.com/asian/cat62/sub408/item2559.html.
References
7. Jungsoo Lee (1999). Policy response to the Asian financial crisis: an overview of the debate and the next
steps. EDRC Briefing Notes, number 11.
8. Kalpana Kochhar, Prakash Loungani and Mark R.Stone (1998). The East Asian Crisis: Macroeconomics
Development and Policy Lessons. IMF Working Paper No 98/138 (Washington: International Monetary Fund).
9. Khai Hoan Chu (2019), Khủng hoảng tài chính (Financial crisis) là gì? Các nguyên nhân khủng hoảng tài
chính, vietnambiz.vn.
https://vietnambiz.vn/khung-hoang-tai-chinh-financial-crisis-la-gi-cac-nguyen-nhan-khung-hoang-tai-chinh-
20190827155922039.htm
10. Park, Yung Chul. 1996. "East Asian Liberalization, Bubbles, and the Challenge from China." BPEA, 2:1996,
357-71.
11. WILL KENTON (2021), Financial Crisis, investopedia.com.
https://www.investopedia.com/terms/f/financial-crisis.asp
THANKS FOR LISTENING

Presenting The Textbook's Case Study On East Asia: Success and Crisis'

Uploaded by

Copyright:

Available Formats

Presenting The Textbook's Case Study On East Asia: Success and Crisis'

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Presenting The Textbook's Case Study On East Asia: Success and Crisis'

Uploaded by

Copyright:

Available Formats

GROUP 5

Presenting the textbook’s

Until 1997 the countries of East Asia were

In 1963, South Korea launched a series of

South Korea's economic rise was paralleled

Source: World Bank

On July 2, 1997, the Thai

The economies of Southeast Picture 1: Timeline of the Asian Financial Crisis

- The nature of the Asian corporations, involving extensive cross-subsidisation of

Rapid Liberalization and Deregulation of Financial Markets

The excessive dependence

Over production and

Table 1: Export Growth and Export Shares, Selected Countries, 1990-96

Excessive Borrowing and Currency

Figure 3: Nominal GDP per capita in 1997

the President of Indonesia

International investors became less willing to invest in and lend to

Second, it caused a slump in commodity prices. Oil fell from $18 a

- Flexible fiscal policies:

Secondly, substantial structural reform:

Some more lessons

Reforms which aim to stabilize short-term capital flows and effectively

Government policy will play an important role in the future. Without

You might also like