Discussion paper
Of sheep and
tigers
The Asian financial crash of 1997 and its
consequences for the rest of the world
Bryan R Evans
Tearfund, 100 Church Road, Teddington, Middlesex TW11 8QE, UK
Tel. 0181 977 9144
Fax 0181 943 3594
Tearfund discussion papers are short exploratory research papers aimed at provoking wider
discussion of development-related issues among Tearfund staff and the organisations and
individuals with which Tearfund works. They do not necessarily reflect the official views of
Tearfund. Comments from readers are welcomed.
Bryan Evans is a researcher in Tearfund's Public Policy Team and may be contacted by email at: bre@tearfund.dircon.co.uk
Contents
Introduction
The roots of the crisis A capital inflow - Worsening trade balance -
Page
1
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Inefficiency and lack of integrity - Skewed lending - Over-confidence Governments were remiss - Volatility of foreign investment - Market failure
The role of the IMF
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Repercussions across the world World output growth - USA -
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European Union/UK - Eastern Europe - Japan - China - India
The impact on SE Asia Economic impact - Social impact - Ethnic
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tensions - International relations - Indonesia - South Korea - Thailand Malaysia - Tearfund partners
The impact on the developing world Development finance -
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Commodity prices - Sub-Saharan Africa - Latin America
A new international architecture? Promoting transparency - Capital
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Account Liberalisation - Regulation of capital movement - Limiting access to
financial markets - Early warning systems - International insolvency procedure
- International credit insurance - Tax on currency speculation - Move from debt
to equity - A shift to internal growth - Reform of the World Bank/IMF
Some questions to ponder What is truth? - Is there justice to be found
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in the world? - Africa on the margins? - What price relationships? - Curative
medicine only? - Investment or gambling? - Whither globalisation?
APPENDIX Key dates - Reform of the World Bank/IMF - Private sector
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debt exposure - Vulnerable economies
ABBREVIATIONS
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SOURCES
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Introduction
Since the 1960s, four countries in SE Asia (Indonesia, Malaysia, South Korea and Thailand
- the so-called 'tiger economies') have achieved rapid economic growth, lifting millions of
people out of poverty. As they left the Third World behind they were cited as the model to
emulate. Even the developed world sought to learn from them. Yet in just five months last
year this success story was abruptly interrupted.
On July 2nd 1997, Thailand announced that it was floating its currency. It transpired that it
had a large short-term debt, but almost no foreign exchange reserves with which to meet
payments. Malaysia and Indonesia, with similar debt/exchange problems, were soon
compelled to float their currencies, too, as foreign investors rushed to withdraw their money.
Then, in November, the crisis spread to South Korea, the world's eleventh largest economy.
Currency values in the affected countries plummeted by 70-90 per cent, dollar-denominated
debt rose sharply, banks and businesses went bankrupt, workers were laid off, and
international trade contracted. Although the International Monetary Fund (IMF) stepped in
with bailouts, its austerity programmes brought further pain to millions of ordinary people.
This paper examines the causes of the crash, some of them internal to SE Asia
(overproduction, over-confidence, lack of integrity in the banking system), and others
traceable to foreign investors ("an extremely dangerous flock of financial sheep.") The part
played by the IMF before and during the crisis is also examined. The paper then looks at
the consequences of the crisis, beginning with a seemingly complacent West, going on to
examine the economic, social, and political consequences for Asia itself and, lastly, asking
what are the implications for the developing world, which is largely left out of the West's
calculations, but is likely to suffer the worst of all. After this, the paper examines the "new
architecture", the reform measures being mooted by the international financial institutions,
which call for less regulation, in the name of market orthodoxy. Finally, it asks what lessons
are to be learned, raising questions about the lack of integrity, the volatility and the frailty of
the world economy. This paper argues that if the West does not move quickly to control
international lending, the Asian crisis may prove to have been but the first rumblings of a
major breakdown in the world economic order.
The roots of the crisis
A capital inflow to SE Asia
In the early 1990s foreign fund managers poured money into SE Asia because investment in
the industrialised world had become less attractive.
Japan's 1980s bubble (the boom in credit and property prices) burst in 1990. This was
followed by a decline in stock market turnover, land prices, and interest rates.
A cyclical downturn in the West meant weak performance and low interest rates.
Managers were further encouraged by stable exchange rates, and positive World Bank
reports on Asian investment opportunities.
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A worsening trade balance
The inflow of capital sucked in imports (components for export goods, materials for
construction projects), but the exports to pay for them were becoming less competitive.
Increased production became over-production.
SE Asia's currencies were pegged to an appreciating US dollar.
China chose to make exports the engine of its economic growth, and it could offer better
educated, cheaper workers.
SE Asia suffered wage inflation (wage increases not matched by productivity).
South Korea faced particular problems. The USA feared it would become another Japan,
with which it would be constantly in deficit, so in the early 1990s conducted a trade
offensive. Unable to graduate from its status as "a labour-intensive assembly point for
Japanese inputs," South Korea found itself squeezed. It could not compete with China in
low-cost products, nor with Japan in high-wage manufacturing.
Inefficiency and lack of integrity in the banking system
Capital inflows, plus stalling exports, spelt a build-up in credit. This flourished in a context
of "crony capitalism" (business deals based on political relationships, rather than commercial
principles), inadequate regulation, and lack of due diligence by foreign investors.
Reporting and provisioning requirements for non-performing loans were often inadequate so
that when bankruptcies occurred, the liabilities of the failed companies often greatly
exceeded the officially disclosed figures.
Exit mechanisms for insolvent banks were ineffective. They thus had no incentive to behave
prudently, and continued lending.
Far from being deterred by cronyism, foreign investors relied on their business partners
having good contacts.
The World Bank blames rapid liberalisation without a corresponding strengthening of
supervision and regulation. Yet, would supervision have been effective? Lester Thurow,
professor of Management and Economics at the Massachusetts Institute of Technology,
notes that Korea borrowed about $160 billion in foreign currency. He comments: "this was
not supposed to have been possible. Following the crashes in Latin America in the 1980s
the international financial community supposedly set up a system by which banks in the
industrial world would report on their total lending (private and public) country by country to
the Bank for International Settlements."
Lending skewed towards real estate and construction
Lacking reliable balance sheet information, many foreign banks based lending decisions on
the availability of collateral. This skewed lending away from manufacturing (which is
exposed to international discipline), and towards real estate and construction (which simply
fuels the market).
Thirty years of unbroken success bred over-confidence, and a sense of impregnability.
(The largest corporates were perhaps viewed as too big to fail.) Governments embarked on
progressively more grandiose and economically questionable projects - new cities, railways,
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roads, power stations. (Some claim that the lack of democratic accountability in SE Asia
made such investments possible. Yet "capitalism has shown itself flexible enough to have
worked for the security of rulers, and the profit of investors, under governments based on
fascism, religious fundamentalism, slavery, internal terrorism, apartheid, absolute monarchy,
militarism" AM Rosenthal, International Herald Tribune, 24-25/12/97.)
Governments were remiss in allowing the banks to count on a bail-out
The banks seem to have assumed that if their lending went badly wrong, so long as that
lending was big enough and general enough governments (i.e. tax-payers) would have to bail
them out. This not only defies market logic, it encourages 'moral hazard' (bailing out the
reckless, so that they have no reason to be less reckless next time).
The volatility of foreign investment
The growing dependence on foreign investment made the region vulnerable, for the foreign
lender has no commitment to support debtors through bad times.
Almost every five year loan agreement included a downgrade let-out clause, so that if a
country's credit was downgraded by a major ratings agency the commercial banks were
able to pull their money out - and that is exactly what they did.
Technological change has reduced to almost zero the cost of shifting between currencies,
and this necessarily encourages trading and volatility.
(Thurow, however, claims that crashes are set off by local investors, who have the best
information. Outside speculators then join the panic.)
Market failure
Markets proved themselves inefficient, slow to react to warning signs, then over-hasty in
their withdrawal (which was not an appropriate response to structural problems needing
long-term reforms). The withdrawal became a panic that was almost impossible to stop,
with the 'contagion effect' spreading problems from one economy to the next. Jeffrey Sachs,
head of the Harvard Institute for International Development, goes so far as to say "there is
no 'fundamental' reason for Asia's financial calamity except financial panic itself."
The role of the IMF
The IMF has been severely criticised, and its role in the world financial system is now being
questioned. Its goal of Capital Account Liberalisation (CAL) is seen as a major factor in the
development of the crisis (and this goal is still relentlessly pursued). The austerity it has
demanded of governments, in return for its help, has induced deep recession. Some ask
whether the IMF should have become involved at all.
The IMF has been promoting Capital Account Liberalisation (to the commercial
advantage of the USA in particular) since the 1980s. It seems to be imprisoned by an
economic paradigm that emphasises deregulation, and the supremacy of the private sector.
It has failed to anticipate the destabilising effects of unregulated global capital markets - of
which the Asian crisis is a graphic example.
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In responding to the crisis last year, the IMF did not provide quick disbursing funds, (and so
did not fulfil its role as lender of last resort). It failed to organise debt restructuring,
leaving this to Western governments. It derailed the Asian Monetary Fund, proposed
by Japan and backed by China and Taiwan. (The AMF was conceived as being more
flexible, less doctrinaire, "more Asian" than the IMF. Clearly it threatened the IMF's grip on
economic thought, and the USA's strong influence on the IMF.)
So what did the IMF do?
It treated the Asian crisis as a repeat of the Latin American debt crises of the 1980s and
1990s, and handed out an "off-the-shelf" austerity package. It failed to see that it was not
dealing with profligate government spending and low personal savings rates (as in Latin
America), but with private sector excesses. The budget cuts and higher interest rates
demanded by the IMF were supposed to encourage the return of foreign capital. Instead
they hastened the downward spiral in the private sector - money in short supply, expensive
credit, companies collapsing, lost jobs, consumer demand in decline - which could only
encourage foreign capital to stay away.
It insisted that the Asian economies were basically unsound and needed to correct
weaknesses in labour laws, in tax and tariff structures, in banking systems, and also to root
out crony capitalism. This was not necessary in order to deal with problems of short-term
liquidity, and it merely frightened investors and lenders. Insistence on the closure of troubled
banks, for example, caused a run on the banks and a further plunge in currency values.
It put together huge financial packages, even inventing a new kind of loan, the 'Supplemental
Reserve Facility', in order to bypass borrowing limits. (IMF rules say that a country may
not borrow more than five times its IMF quota.) These resources have, in effect, bailed-out
short-term foreign investors, thus encouraging greater moral hazard.
Some ask whether the IMF has not exceeded its mandate, trespassing into the territory both
of the World Bank, and of national governments.
Traditionally the IMF is responsible only for short-term macroeconomic policy. Longerterm structural reforms are the province of the World Bank. This would suggest that it was
the World Bank's part to promote financial sector reform. However, when the crisis started
in Thailand, the Bank was slow to respond, and the IMF elbowed the Bank and other
multilateral institutions aside, and set about doing the job themselves. By the time problems
emerged in Indonesia and South Korea they felt they had established a precedent.
The IMF's Articles of Agreement say nothing about trade and investment liberalisation,
privatisation, foreign investment, or public sector austerity measures. Article II, however,
does refer to the Fund's role in promoting high levels of employment and real income. In
attacking structural problems that did not directly precipitate the crisis, was not the IMF
usurping the authority of governments?
Resentment against the IMF/USA
As far as the peoples of SE Asia are concerned, IMF programmes lack democratic
legitimation, and display double standards. Foreign interests are bailed out, while domestic
4
firms are left to the mercy of the market, and taxpayers are forced to bear the burden of the
private sector's failure. The IMF appears to act as the battering ram of US policy, enabling
US multinationals to buy up local businesses at fire-sale prices. This breeds resentment
against rescuers who seem more like predators. (The IMF and the USA hardly trouble to
dispel this perception. Too often the USA acts as if the Fund was its wholly owned
subsidiary, and Michel Camdessus, the head of the IMF, has been quoted as saying "what
we are doing coincides with the basic purposes of American diplomacy in the world".)
Repercussions across the world
Now that the initial panic is over, Western economists are talking of a "small dent" in world
economic activity, even of "unanticipated benefits" (a cooling of growth that was threatening
to become over-rapid and inflationary). However, this optimistic assessment depends on
some big assumptions: that the crisis can be contained within SE Asia, that the USA will put
up with a widening trade deficit, that the Japanese economy will not slow further, that China
does not resort to devaluation. It should also be borne in mind that this is a crisis with a long
way to run. The turmoil can be expected to continue unfolding over the next five years.
World output growth
The five countries most seriously affected by the crisis account for only 3.6 per cent of
world GDP, about 7 per cent of world trade, 6 per cent of global foreign direct investment,
and less than 4 per cent of gross international bank lending. World economic growth is
expected to decline only slightly, from 3.2 per cent in 1997 to 2.6 per cent in 1998. (In SE
Asia, however, the decline in growth will be significant, perhaps a fall to 0.3 per cent GDP
growth from the 7.1 per cent previously expected.)
The USA
SE Asia is in the perverse situation of needing to export its way out of trouble, even though
over-production is at the root of the region's problem. Who is to take these exports? Japan
has the capacity, but it has deep problems of its own at the moment. This leaves the US
market as the only one big enough to absorb the exports, and the currency crisis, plus
capital flight, has made US imports cheaper and exports dearer. Yet, the US trade deficit
for 1997 ($178 billion, or 2 per cent of GDP) was already the biggest since 1988, and this
is seen as but a hint of the surge of imports to come. The IMF forecasts that the trade
deficit will rise to $230 billion in 1998 (others estimate $300 billion), and that the gap could
reach $250 billion, or 3 per cent of GDP, by 1999. The rise in US imports may cost up to
a million job losses in the USA in 1998 alone, and lead to calls for protectionism
(Newsweek, 2/2/98). Furthermore, the US stock market is believed by many to be
seriously over-valued. If there is a major "correction" this would hit production,
employment, incomes, and the US capacity to import.
European Union
The EU does not expect to be seriously affected by the Asian crisis, because commerce
with Asia is comparatively small (it accounts for only 0.6 per cent of European GDP).
However, loans from European banks to East Asia total $365 billion (more than the $275
billion loaned by Japanese banks $275, and the $45 billion from US banks). Stock markets
5
may be affected by cuts in projected growth, and this would affect pensions and savings.
The United Kingdom, as a leading trading nation, and a major overseas investor, may be
more seriously affected.
Austerity will depress Asian demand for imports, while the devaluations make UK exports
less competitive. UK manufacturers will also find it difficult to compete with much cheaper
Asian imports.
There will be reduced Asian investment in the UK, and fewer tourists. This will lead to job
losses.
If shockwaves from Asia affect the European economies differently, and require different
monetary policy responses, European Monetary Union (EMU) could be put under strain.
Eastern Europe
Eastern Europe is likely to see falls in foreign investment. The region also manifests some of
the characteristics which proved so dangerous in SE Asia (fragile financial systems, low
transparency, poor corporate governance). Russia's ratio of short-term debt to foreign
exchange reserves makes it look particularly vulnerable.
Japan
Spillover effects from SE Asia, and domestic weakness, are expected to cut 4 percentage
points from GDP by the end of 1998. A region-wide recession might tempt Japan to
repatriate some of its foreign investments. (Japanese investors hold a quarter of all foreign
holdings of US government debt.)
$275 billion is owed to Japan's financial institutions and, at 43 per cent of capital, they are
more exposed than Europe and the USA. Exports to the rest of Asia (44 per cent of the
Japanese total) can be expected to fall sharply.
On the domestic scene problem bank loans, resulting from the end of Japan's 1980s
property and credit boom in 1990, still have not been written off (partly because lax
regulation has allowed the banks to disguise the problem). They now stand officially at
US$592 billion.
With a large cushion of reserves Japan is likely to muddle on. If change does come it could
be sudden and painful. The Japanese have “an incredible ability to make brutal, 180-degree
radical changes overnight” (International Herald Tribune, 27/3/98.)
China
Overall, economists note that the 'Chinese' economies (mainland China, Hong Kong,
Taiwan, Singapore), have managed better than others. With Japan failing to take a lead,
post-crisis Asia may well be a continent dominated by China, with Japan in decline.
However, China is very dependent on exports (now threatened by SE Asia's new
competitiveness), and it has serious domestic problems, particularly unemployment.
China needs 6 per cent annual growth just to stand still and, with a falling off in domestic
demand, the country is ever more reliant on exports to maintain the momentum of growth.
Many economists expect China to allow the yuan to fall, possibly causing the peg holding up
the Hong Kong dollar to break.
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“A huge population of tens of millions of migrant workers already ebbs and flows in loud
discontent through the cities” (Sunday Times, 22/3/98), yet mass lay-offs are in prospect as
premier Zhu Rongji plans to restructure loss-making and debt-ridden state-owned
industries. A figure of 12 million redundancies is talked of. (International Herald Tribune,
27/3/98, which estimates present unemployment at 200 million, suggests that the planned
restructuring could add 80-100 million to the total.) Question marks also hang over the
banks, many of which are insolvent, and the property market, which has been booming, and
is ripe for a crash (though it is not known how much foreign money is invested here). An
economic slowdown is a near certainty.
India
India saw deceleration in the rate of export growth to the rest of Asia, April-November,
1997, and is concerned about loss of competitiveness.
The impact on South East Asia
In the last twenty years SE Asia has seen something of the change and upheaval experienced
by Europe in the industrial revolution, but at a vastly accelerated pace. The economic crisis
threatens to undermine much of the economic development of this period, crushing raised
expectations. The resulting turmoil threatens the social fabric, ethnic harmony, and
international relations. “The loss of lifetime savings, rapidly rising unemployment, living
standards eroded by huge increases in prices for imported necessities, and a crushing
economic burden for the poorer classes are an inflammable mixture" (International Herald
Tribune, 16/1/98).
Economic impact
Trading positions have improved since the onset of the crisis, but this is largely the result of a
collapse in import demand. Exports have grown in volume, but fallen in US$ values,
because of currency devaluations. If credit remains cut off, exporters will be unable to take
advantage of their new competitiveness, for Asia relies heavily on manufactured exports with
a high import content. Moreover if each nation tries to export its way out of trouble it will
find its way blocked by the lower costs of its neighbours. There is a danger of competitive
devaluations, and/or protectionism.
Currency devaluations, and the high fixed interest rates demanded by foreign banks in return
for extending the maturity of loans, will divert income from national reinvestment to debt
servicing. This will condemn SE Asia to decades of slow growth.
Multinational companies who see 'excess capacity' may buy up local rivals and simply close
them down, rather than invest more and compete. (This is what happened after reunification
in Germany when West German enterprises bought up East German ones, only to shut them
down.)
Social impact
By 1999 emerging Asia’s average unemployment rate (2 per cent in the early 1990s) could
rise to 6 per cent (and official figures do not include under-employed workers in rural
7
areas). The unemployment could be long-term, and most Asian countries do not provide
unemployment benefits. So far, governments have responded in three main ways: 1)
expulsion of foreign workers (see below), 2) encouraging those with farming roots to go
back to them (raising the spectre of fierce land disputes), 3) job creation programmes and
social safety nets.
Health services rely on imported drugs and medical equipment, so costs are bound to go up.
(Indonesia, for example, imports 70 per cent of its medical supplies, and dependence on
subsidised services is expected to rise to 68 per cent of the population.) Governments are
under considerable pressure to restrict budgets, and quality is almost certain to suffer.
Women are likely to be more adversely affected than men. They are concentrated in the
most precarious forms of wage employment. They are largely dispersed and unorganised.
They may find themselves at a disadvantage in gaining access to credit, and other
employment promotion schemes. Trafficking of women and children may increase as
families, particularly in tribal and upland areas, become desperate.
Among other likely social implications are: an increase in school drop-outs, a rise in
malnutrition, the fabric of families worn by tension, a rise in gambling and drug and alcohol
abuse, an increase in the suicide rate, an increase in crime (e.g. piracy in the waters around
Indonesia, already the most dangerous in the world).
Cuts in advertising and a steep rise in the cost of newsprint have had a catastrophic impact
on the SE Asian press, seen in increased prices, staff cuts, and reduced pages. Some
journals have ceased publication. This is a very serious issue in a region where democracy
is weak, and there is a culture of hiding behind secrecy.
Ethnic tensions
There are significant Chinese minorities in Malaysia, Indonesia and Thailand, and their
prosperity is resented. Many Indonesian Chinese are Christians, so there is a religious
dimension to the tensions. There are also 6.5 million Asians working outside their own
country, many of them illegal immigrants. Their expulsion is likely to increase ethnic tensions.
Cutting off foreign work opportunities not only hurts the individual workers, but the people
back home who depended on their remittances.
Chinese constitute 30 per cent of the population of Malaysia. In Indonesia they are only 3
per cent of the population, though they make up 20 per cent of the three largest cities. Up
to 500,000 Chinese were killed in the troubles of the 1960s. Since then they have been tied
to the army and Suharto. Their domination of much of the commercial sector, and their
perceived financial support for the Suharto regime, are deeply resented by the Muslim
majority. Thailand Chinese represent only a small fraction of the population there, but they
straddle every line of business, e.g. twelve of the fifteen commercial bank enterprises are
Chinese family operations.
The expulsion of foreign workers is most likely in Malaysia. With a population of only 20
million it has augmented its workforce with imported labour, and tolerated illegal immigrants
8
(including an estimated one million Indonesians) for years. Now there is increasing
resentment against the Indonesians, and the fear that they may turn to crime. The
Indonesians, in turn, are angry at the sudden change in attitude. 7,612 illegal immigrants
were caught on the west coast of peninsular Malaysia between January and mid-March
1998 (8,800 in the whole of 1997). About 124,000 Bangladeshis entered Malaysia legally,
1992-97, but perhaps as many more are undocumented workers. An estimated 1.2 million
foreign workers are in Thailand, 944,000 of them undocumented or illegal, and about 85 per
cent of these are Burmese. In January 1998 the government announced its intention to
repatriate the estimated 600,000 foreign workers engaged in low-paid fishing, agriculture,
and construction jobs, by June, to make way for Thai workers. The Burmese are unlikely to
return voluntarily since alternatives at home are equally bleak. Their government may resist
their return, since many are Karen, and have opposed the government for decades.
International relations
The problem of illegal immigrants and the threat to ethnic minorities could become
international issues. (Some analysts warn that China might feel compelled to intervene to
protect overseas Chinese.) Malaysia and Singapore are also seriously concerned about an
influx of Indonesian boat people fleeing economic hardship and rioting. Furthermore there
are some profound national antipathies (hitherto restrained by economic growth) and
conflicting territorial and maritime claims. In the wake of the crisis defence cuts by some
could result in a widening gap in defence capabilities, and increased instability.
There are historical antipathies between South Korea and Japan, China and Japan, and
China and SE Asia. The US is concerned that North Korea might seek to take advantage
of the South's sudden weakness. A power vacuum in Indonesia could pose a threat to
shipping lanes, and oil and gas supplies, vital to Japan (70 per cent of Japan's oil is shipped
by this route). Note: East Asia was the second largest regional arms market after the
Middle East, so there are weapons around.
Indonesia
Indonesia is now burdened with a crushing foreign debt. The poor face high inflation,
unemployment and underemployment, with the minimum wage frozen at under $1 a day.
Per capita GDP is back to 1960s levels. Confrontation between street demonstrators and
the security forces remains a strong possibility.
Indonesia's foreign debt is now estimated at between $133 billion (including more than $65
billion in private debt) and $200 billion.
The debt/GDP ratio is 192 per cent (at an exchange rate of Rupiah 10,000 to the dollar).
The rice equivalent of the daily minimum wage fell from 6.28 kg to 4.76 kg in 1997 and
inflation is thought likely to reach 50 per cent in 1998. The poor do not have the cash to
buy when prices are low, and pay a much higher price to meet their daily needs. Moreover
Indonesia faces a 10-12 million metric tonne shortfall in rice this year because of the El
Nino-related drought. The poultry business, an important source of protein, is collapsing as
it is heavily dependent on imported feed and medicines. With mortgage interest rates now at
35 per cent the middle classes are also badly hit.
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Projections for 1998 unemployment range between 8 per cent and 10 per cent (depending
on assumptions on GDP growth). Three factors make it difficult for rural areas to absorb
urban unemployed: 1) underemployment (defined as less than 35 hours a week), an even
greater problem than unemployment, according to the ILO. The informal sector accounts
for nearly two thirds of total employment, and this is where underemployment is
concentrated; 2) agriculture has been commercialised to such an extent that its capacity to
absorb additional labour has been greatly reduced; 3) many of those who have been
working in manufacturing, construction, etc. in the cities are not recent migrants. They have
lost their links with the rural areas. The final outcome is likely to be more underemployment,
and even lower average incomes. Women are more likely to be affected than men.
Per capita GDP (at Rp10,000 to the dollar) is $305, a quarter of its level in 1996 and about
where it was when Mr Suharto assumed power. According to the World Bank the
percentage living on $1 a day (reduced from 60 per cent in 1970 to 11 per cent in 1996 although some say the poverty line was lowered to make the statistics more favourable)
could now rise to 20 per cent. Some Asian economists say 30-40 per cent, and one
(Walden Bello from the University of the Philippines) puts the figure at 60 per cent.
If the Chinese are driven out, the consequences for the Indonesian economy would be very
serious.
The increasingly violent public protests are alarming in a country with a host of progovernment vigilante groups, and a sprawling and largely unsupervised security system.
Anti-subversion laws allow detention for up to one year, and the number reported to be at
least awaiting trial for political activities was thought to be about 200 in May 1998.
South Korea
Unemployment, embittered labour relations, and a reduction in international competitiveness
are among the consequences of the crisis for South Korea.
The old labour laws restricted lay-offs, so employers have responded with a recruitment
ban. First-time job-seekers have been hardest hit, as unemployment has risen from 2.3 per
cent last October to 6.5 per cent in March 1998. The situation was set to get worse from
April 1998 as restrictions on lay-offs were eased in February '98, making it possible for
employers to lay off workers in an emergency situation, after giving 60 days' notice.
Women are likely to be laid off first, and women with children first of all. Unemployment
may reach 10 per cent by the end of the year. This is happening in a context of “vile hatred
between business and workers” after years in which the workers were kept down.
Cuts to Korea's infrastructure development could lead to a reduction in international
competitiveness in the medium to long term.
Thailand
In Thailand unemployment and its consequences are now central to the country's social
problems. The big question is, can the rural economy be the means of reviving the national
economy?
At the end of 1997 the unemployment figure was 3.4 per cent. The ILO regards the official
estimate of 5.6 per cent at the end of 1998 as optimistic. Walden Bello suggests
unemployment could reach 15-20 per cent of the work force. Underemployment and
consequent reduced earnings are likely outcomes.
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Remittances from city workers have played a major role in sustaining rural living standards.
Now workers are returning to rural areas - an average of five migrants had returned to each
of the country's 60,000 villages by the end of 1997 (NGO estimate). Thai policy makers
are in fact placing their faith in a revival of the rural economy. Forum of the Poor, a mass
organisation of farmers' groups, sees an opportunity to reverse urbanisation and
industrialisation, and to re-establish traditional values. Last year the government made a
commitment to set aside 10 million acres of land for sustainable agriculture (as opposed to
export agriculture). It is estimated that this could support up to 8 million people, about the
number living below the poverty line of $1-2 a day. However, it is feared that budget
constraints may prevent the government carrying through the programme. Furthermore the
north and north-east are badly affected by drought.
Malaysia has avoided bringing in the IMF because its banking system was better
supervised, and it did not borrow as much from abroad. Nevertheless it shares almost all its
neighbours’ problems. Loan defaults are expected to reach 20 per cent of total loans over
the next two years, and the banks will need $5 billion to cover losses.
A note on Tearfund partners: The economic crisis has affected the poor, and small
businessmen. The problems encountered by Tearfund partners illustrate this.
YASKI, Indonesia (a Christian radio station, with bookshop, and handicrafts section), state
that one of their silver suppliers is reporting limited availability of silver, and prices at 400 per
cent of the previous level. A local beads supplier reports prices 150 per cent of the
previous level, whilst he has had to pay his workers higher daily wages. YASKI themselves
expect the cost of air time to rise, and dialects without sponsorship will suffer. They have
not laid off any workers yet, and they are looking for ways to increase salaries. They are
not recruiting new staff, however, or buying new equipment (and they fear being left behind
in the computer/electronic field). They are cutting overheads as much as possible. They
may not be able to continue to maintain their missionary in Manila.
Thai Tribal Crafts also report steep price rises for materials, - cloth up 50 per cent, thread
25 per cent, silver 175 per cent. The Labour Department has laid down a new minimum
wage, but it does not cover makers of craftware. Producers have told TTC that the current
prices will not enable them to earn the minimum wage, and commercial buyers offer them
even less. They have asked TTC to help.
The impact on the developing world
The crisis will affect developing countries more than high-income countries. The World
Bank and the IMF will have less money for development finance (because of their
commitments to Asia). There will be reduced foreign private capital flows (exacerbated by
domestic capital flight), reduced trade volumes, lower prices for commodities, and widening
spreads for borrowers (World Bank PREMnotes, March 1998). GDP growth for all
developing countries is now projected to be 3.9 per cent in 1998, 4.7 per cent in 1999, and
5.1 per cent in 2000 (1.0, 0.4, and 0.2 percentage points less than projected in mid-1997).
11
There will be less development finance for the world's poorest countries. Help for
Asia (and higher lending to eastern Europe) has left the IMF with only $45 billion of
resources available for use on new situations. World Bank lending will probably rise to $11
billion in 1998, instead of the $2 billion planned. This will push up normal provisioning (for
bad debts), and punch a big hole in the Bank’s net income. This in turn means less money
for debt relief, and for soft loans to poorer countries. The Asian Development Bank is also
contributing to the bail-outs. As a result in 1998 it is not planning to transfer any profits to
the Asian Development Fund (from which it provides subsidised loans to the region’s
poorest countries).
Commodity prices have shown sharp declines as SE Asia has been forced to cut imports.
World copper prices plunged 33 per cent between June 1997 and January 1998. Timber
prices fell 24 per cent, nickel 20 per cent, zinc 16 per cent, hides 15 per cent and soybean
meal 11 per cent. Natural rubber prices took the biggest fall - 37 per cent during the six
month period - while crude oil prices fell 13 per cent (Financial Times, 15/4/98). Overall,
commodity prices have fallen by 10-15 per cent since mid-1997.
In sub-Saharan Africa exporters of oil (Angola, DR Congo, Gabon, Nigeria), minerals
(DR Congo, South Africa, Zambia), sawn wood (Cameroon, Cote d'Ivoire, Swaziland),
and cotton (Sudan, Tanzania, Togo) will be hurt by sizeable terms of trade losses. Zambia,
Tanzania, DR Congo, South Africa and Angola could all see lower exports to Asia.
Latin America will see a reduced demand from Asia for its exports, falls in commodity
prices, stiffer competition in low-wage products, and the threat of speculative attacks by
investors. Countries with large external deficits may try to reduce their vulnerability by
cutting imports, and devaluing to boost exports. However, given the sensitivity of Latin
American countries to inflationary pressures, they may not be able to adjust their exchange
rates to restore their competitiveness in world markets.
Petroleum is the principal or a major export item for five countries in the region (Colombia,
Ecuador, Mexico, Trinidad and Tobago, Venezuela). Copper is a major export of Chile
and Peru, and tin and cotton are major exports of Bolivia and Paraguay. Exports to Asia
will be affected both in volume and price. Chile seems to be the Latin American country
most directly exposed to Asia, with 30 per cent of its exports going there.
Countries which export low-wage products such as athletic shoes and toys (e.g. Mexico,
Brazil) will face stiffer competition from SE Asia.
Most financial market attention has focused on Brazil, where investors see some similarities
with Asia, notably an overvalued exchange rate. Moreover, a big budget deficit and a
growing current account deficit suggest an economy out of balance. Argentina may also
face a speculative attack.
A new international architecture ?
The crisis has stimulated discussion not only of the short-term measures introduced to
counter the panic, but also of longer-term reforms to the world financial framework. The
12
phrase in fashion at the IMF and the World Bank is "the new international architecture".
What form might this new architecture take? There is general agreement on the need for
more transparency, but other questions are fiercely debated. Should capital account
movement be liberalised or regulated? Should some countries' access to financial markets
be limited? Is an early warning system desirable?
Promoting transparency (and hence accurate forecasting) is seen as basic to crisis
prevention. The interim committee of the IMF underscored members’ obligations to
provide timely and accurate data (e.g. on short-term debt, and details of net foreign
exchange reserves). However, ensuring that the last crisis would have been spotted does
not mean that the next will be.
The IMF is seeking changes to its Articles to enable it to press for Capital Account
Liberalisation (CAL). At present the Fund does not have a legal basis for responding to
balance of payments crises arising from problems in the capital account. Nor does it have a
legal basis to persuade member countries to relax capital controls. (When the Fund was
established in 1944 there was a system of fixed exchange rates and capital controls.) The
changes sought by the IMF would enable it to introduce legislation contained in the now
stalled Multilateral Agreement on Investment. Angela Wood (in a Bretton Woods Project
paper, 'The blind leading the blind') lists the following problems with CAL:
government macroeconomic policy would be geared towards attracting and retaining capital
flows.
competition between developing countries would lead to downward pressures on wages
and conditions, and low taxes for investors.
the repatriation of profits would transfer the benefits of foreign investment away from the
developing world.
large short-term flows contribute to exchange rate fluctuations and asset bubbles.
short-term investors are not committed to the country where they place their money.
There is, however, no reason to believe that investors who acted incautiously in the past will
be more responsible with less regulation. South-east Asia was destabilised first by large
tides of money flowing in in search of high returns, then flowing out again as panic spread.
Hence the arguments for the regulation of capital movement. Paul Krugman of the
Massachusetts Institute of Technology offers the following diagnosis and suggested
response: “Panics are possible because of the existence of financial intermediaries, which
borrow short (providing liquidity) and lend long (permitting productive investments). This is
a vital function, but one that exposes the economy to the risk of self-validating bank runs.”
Governments have evolved three lines of defence - deposit insurance, regulation, and the
ability of central banks to act as lenders of last resort. Now (through deregulation and
globalisation) “we have in effect moved from national to global financial markets without
creating a corresponding global version of national regulation or national safety nets”. The
most practical answer is to place restrictions on capital movement, particularly on the ability
of borrowers to incur short-term foreign-currency debt.
13
Another suggestion (from the spring meetings of the IMF/World Bank) was that the
authorities in the major financial centres should consider limiting access to their markets to
banks from countries with a supervisory regime that meets international standards.
An early warning system? At the IMF/World Bank spring meeting, April 1998, the
interim committee agreed to ask the board to develop a mechanism for increasingly strong,
and ultimately public, warnings to countries that ignore its advice. There are risks involved,
either of precipitating the crisis it was supposed to avert, or raising concerns that prove
groundless (the IMF has been privately predicting crises in Turkey, Romania and Pakistan
for some time, and they have not yet materialised.) Another option is peer pressure warning countries that would be hurt if a neighbour’s imprudent policies brought on a crisis.
Gordon Brown has proposed a joint department of the World Bank/IMF/Bank for
International Settlements and others, to carry out regular surveillance of countries' financial
systems, and to point out regulatory weaknesses.
Other suggestions for the "new architecture" include: an international insolvency procedure,
to try to deal with problems in a fair and orderly way; a system of international credit
insurance, guaranteeing loans up to pre-agreed borrowing limits; a discriminatory tax against
short-term foreign investment; a shift to equity (a more flexible form of funding, and one
where the investor bears the losses as well as enjoying the profits); a stress on internal
growth rather than export-led growth; reform of the World Bank and the IMF.
An international insolvency procedure?
This is an idea that the rich countries seem anxious to write off as "impractical", even though
at present there is no mechanism for bringing debtors and creditors together. The idea was
mooted during the 1980s debt crisis, and has since been revived by Dr Kunibert Raffer of
the University of Vienna, drawing on the precedent of Chapter 9 of the US Bankruptcy
Code. Under the code a municipality may file for bankruptcy, and there is then an automatic
stay of enforcement of claims. The municipality cannot be prevented from continuing to
provide basic services, nor forced to impose heavy tax increases. The case is heard in open
proceedings in court, and creditors receive symmetrical treatment.
International credit insurance?
George Soros has called for the establishment of an International Credit Insurance
Corporation, which would set limits on the amount a country can borrow, and guarantee
loans up to those limits, borrowers providing details of all loans, public and private.
Another option is a tax on foreign currency speculation. Chile, for example, requires
investors to place 30 per cent of the value of their investment in an account at the central
bank for a year. This account does not earn interest, and is in effect a tax. For longer-term
investors this is not a significant cost, but it tends to deter short-term investors.
14
A move from debt to equity?
The globalisation of capital has taken the form chiefly of growth in debt securities and bank
loans, rather than equity. (Equity accounted for only 7 per cent of the money raised on
international capital markets in 1997). There are three main inducements to borrow:
The willingness of governments to allow interest payments as a charge against profits,
enabling companies to cut their tax bills. This is a deviation from fiscal neutrality, and it
encourages excessive borrowing.
Borrowing limits the equity base of the company, so that control can be “kept in the family”.
The use of property as collateral for short-term bank lending. This fosters the illusion that
banks can finance long-term investment while retaining the option of a quick exit.
Debt securities and bank loans are, in their very nature, inflexible obligations and potentially
destabilising. Equity is far more flexible. Dividends, unlike interest payments, can be cut,
and any loss of capital value falls on the investors.
A shift to internal growth?
Thurow maintains that the era of export-led growth is over. It only works when a few small
countries play the game. When big countries, such as China or Indonesia, want to play, the
game ends. In his view SE Asia must make the structural changes necessary to shift to a
strategy based on internal growth.
Reform of the World Bank/IMF?
In their paper Taming the Tigers, CAFOD/Focus on the Global South urge that the IMF
should be confined to preventing a breakdown in trade caused by exchange rate volatility or
balance of payments difficulties. Further they recommend a thorough review of the roles of
the World Bank and the IMF. The IMF, in particular, should be restructured to increase
transparency, accountability and equality, and to ensure that its advice is impartial (not tied
to the US agenda).
Some questions to ponder
"What is truth?"
One notable strand in the story of this crisis has been the way in which words have been
used to bolster market confidence, rather than simply to express truth/reality. Both
international bankers and government ministers have been involved. In March 1997, for
example, after the Thai government reneged on promises to buy up bad property debt, M
Camdessus (managing director of the IMF) said "I don't see any reason for this crisis to
develop further." The Thai prime minister said, on June 18th 1997, "we will never devalue
the baht." Only two weeks later the Thai currency was allowed to float.
Not only are words used in this way, but such use is said to be justified. "Such expressions
of confidence were necessary to avert a genuine market panic" (Larry Summers, Deputy US
Treasury Secretary, quoted in the Financial Times, 15/1/98.) Ironically, the recognition
that the authorities were seeking to influence the mood of the market, rather than describing
objective reality, probably added to the panic. In the light of this, the current calls for
transparency ring somewhat hollow. And one wonders if the expressions of optimism in the
15
West (speaking of the Asian crisis as only a "small dent" in world economic growth) are not
just the latest example of unfounded confidence-boosting.
Is there justice to be found in the world?
It is possible to over-simplify a complex story, but it does seem that prudent and profligate
have suffered alike, and even that the reckless few have been bailed out at the expense of
the living standards of the many.
SE Asian business was foolish to borrow so much money. Yet the disaster cannot be
explained by fiscal or monetary profligacy. The SE Asian economies have been
characterised by a strong work ethic, high savings rates, and high rates of growth.
Investors, unable to distinguish among firms, withdrew from all of them, even from those
with sound management.
IMF programmes have not punished reckless international banks and investors, but stability
and development in SE Asia have suffered. This is the more tragic because, for various
reasons, East Asia had been uniquely successful in securing a broadly shared rise in living
standards. Now disparities are set to widen again.
Africa on the margins
A passing thought has been spared for eastern Europe, and for Latin America, but for Africa
hardly at all. As soon as Western stock markets decided that they were not going to be
seriously affected the crisis was deemed to be “not serious”, if not actually over.
What price relationships?
The crisis has shown how much the West and Asia differ in their attitude to personal
relationships in business. Western shareholder capitalism views a company as "a bundle of
contracts". The practical expression of this attitude was the readiness of the foreign investor
to treat personal links as tenuous, and to pull out as soon as trouble surfaced. In the Asian
perception a company is a long-term community, and business is to be conducted in a
context of relationships and mutual favours. The West now derides this as "crony
capitalism" (though it did not shun involvement when there were profits to be made). Is
there not some middle way? Surely, both the tenuous-ness and the cosiness are perversions
of true relationships. Economic transactions are conducted by human beings, and human
beings are relational creatures. Cannot business be conducted in a context of relationships
that are mutually beneficial, and strong enough to withstand difficult times, yet which do not
become cosy?
Curative medicine only?
Although the disease (in the world financial system) is so serious, we are offered curative,
not preventative, medicine. There is plenty of hindsight on offer, but not much foresight.
International financial arrangements are designed, it seems, to manage rather than prevent
crises. Thurow maintains that crashes just happen from time to time. Neither open markets,
nor government controls, nor fiscal soundness serve as an insurance policy against them. All
we can do, he says, is try to get better at clearing up the mess. Even James Wolfensohn of
the World Bank has admitted “my guess is that in five or seven years there will be another
crisis based on some other factor that we don’t now anticipate."
16
Investment or gambling?
It is disturbing to realise how far the world economy lies at the mercy of investor/gamblers gamblers who swing from unfounded optimism to blind panic. (Paul Krugman, professor of
economics at the Massachusetts Institute of Technology, has said that they are not
predatory wolves, but a flock of very dangerous sheep.) Philip Bowring, writing of the Asia
crisis in the International Herald Tribune, says: "What is extraordinary this time around
has been the way international banks have gone so quickly from mindless extensions of
credit to almost anyone anywhere to reluctance to roll over loans even to the best names."
There is almost certainly more to come. The price of shares on the US stock market has
risen 150 per cent since the end of 1994, and this cannot be sustained. Yet "when
conditions have existed for a long period of time and nothing happens, humans, being
humans, begin to believe that it is possible to defy economic gravity forever ... But let no one
doubt that this earthquake will happen" (Thurow). The biggest fault line in the world
economy is the US trade deficit. No country can run such a deficit, financed with
international borrowing, forever. From January 1st 1999, the Euro will become an
alternative currency in which to keep one's reserves. Transfers from dollars may be
moderate to begin with, but they could easily become a run (Thurow).
Whither globalisation?
There are cracks in the fabric of globalisation and unrestrained markets, yet it seems the
whole process is set to continue. Man is portrayed as an economic being, and the market
as his predestined home. William Pfaff (International Herald Tribune, 13/2/98) writes of
a "naive market determinism" based on "faith rather than evidence, that the universal search
for individual self-aggrandisement automatically promotes collective happiness." Who will
manifest the courage to go against the current orthodoxy, to deny this false
predestinarianism, and to move the emphasis away from buying and selling, calling instead
for truth, relationships and inclusiveness?
July 1998
17
APPENDIX
Key dates
1997
July 2nd: Thailand, with short-term debt of $90 billion, and foreign exchange reserves of
only $1.14 billion - enough for just two days imports - allows the baht to float. Malaysia
abandons defence of the ringgit on July 14th, then on August 14th, Indonesia allows the
rupiah to float.
August 20th: Thailand reaches agreement with the IMF, to adopt a structural adjustment
programme in return for new loans of $16.7 billion (later increased to $17.2 billion).
September: World Bank/ IMF meetings in Hong Kong; a possible Asian Monetary Fund,
which might disburse funds according to conditions different from those imposed by the
IMF, is mooted. The idea is viewed with some dismay by the West, and by the USA in
particular, as a threat to the IMF's power to impose discipline on troubled economies. In
the end the Asian fund is agreed, but under IMF jurisdiction.
October: World Bank/IMF/Asian Dev Bank offer $33 billion package to Indonesia.
(Suharto subsequently announces an unrealistic budget, and backtracks over promised
reforms. This leads to huge falls in the value of the rupiah).
October 22nd: under intense pressure, the Korean foreign minister, Mr Kang (a firm
believer in free market principles) nationalises the struggling Kia Motors. Standard and
Poor's, the US credit rating agency promptly downgrades Korea's debt. This coincides
with a speculative attack on the Hong Kong dollar. The two events trigger an outflow of
foreign capital from Korea, and the won drops sharply. Foreign currency reserves fall from
$30 billion at the beginning of November to $6 billion at the end. Short-term (less than one
year) debt reaches $66 billion out of a total foreign debt of $120 billion. On November
21st, Korea requests a $20 billion stand-by loan from the IMF.
November: two major Japanese securities brokers (Sanyo Securities, Yamaichi Securities),
and the country's tenth largest commercial bank (Hokkaido Takushoku), fail.
December 3rd: IMF agrees a $57 billion bail-out for South Korea, but foreign bankers are
not convinced about S Korea's commitment to reform. They refuse to roll over loans, and
the won "drops like a stone". December 22nd: Moody's and S & P reduce Korean state
and corporate bonds to junk status. December 24th: the IMF and eight country lenders
agree a further $10 billion for Korea to prevent a debt default.
December 31st: since June, 1997 the Thai baht has depreciated 93 per cent, and the stock
market fallen 34 per cent (in dollar terms).
1998 January: collapse of Peregrine Investment Holdings of Hong Kong. Central to its
problems were loans to Indonesian companies totalling $400 million, which they were
unable to repay because of the catastrophic fall in the value of the rupiah against the US$
18
(Guardian, 13/1/98). Peregrine had loaned $265 million to Steady Safe, an Indonesian taxi
cab and transport firm which, by mid-January, was valued at $4.4 million (Guardian,
20/1/98).
January: $43 billion rescue plan for Indonesia, the first plan having fallen apart through
Indonesia’s non-compliance. January 27th: Indonesia declares a de facto moratorium on
private sector debt payments.
January 28th: South Korea reaches agreement with 13 international creditor banks, under
which $24 billion in short-term debt is converted into loans maturing in 1-3 years. The
banks drop their demand that South Korea cover the bonds at double-figure interest rates,
while the South Korean government agrees to "guarantee" the bonds at 8.0-8.5 per cent
interest (IHT, FT, 30/1/98).
March 6th: the IMF announces that it is delaying the second $3 billion disbursement from
the rescue package for Indonesia, as the latter has not met the basic conditions for the
release of more money. (Unease had been aroused by Suharto’s sacking his central bank
governor, his looking seriously at the currency board issue, - regarded by the IMF as a
means to boost the rupiah artificially by pegging it to the US dollar, - and appointing some of
his cronies to the cabinet. A currency peg, even if it had been in place for just one or two
days, would have allowed the Suharto circle to wipe off their foreign debts at Rp5,500
rather than Rp10,000).
April 8th: Third Indonesian rescue plan, for $43/£26 billion:
a) all monopolies and subsidies (except those on rice and soya beans) to be abolished by
October (fuel subsidy to be phased out); safety net measures to be introduced to protect the
poor;
b) IMF to allow a budget deficit of 3.2 per cent;
c) the issue of corporate foreign debt (est. $74 billion) to be tackled. The details of the
scheme are still to be worked out, but it is likely debtors will pay a government agency in
local currency at a favourable rate (possibly R6,000 to $1), and the government will then
pay creditors in dollars, thus taking on the exchange rate risk. In return lenders would roll
over loans by 3-4 years.
GDP is estimated to fall by 4 per cent in 1997/98.
April: FT 18/4/98 and Guardian 20/4/98, report increasingly violent demonstrations in
Indonesia. Students from different university campuses, using mobile phones and the
internet, join up (defying a government ban), and are now joined by housewives. There are
10,000 on the streets every day, in some cities.
May 21st: President Suharto steps down in Indonesia, in favour of his vice-president, B J
Habibie
19
Reform of the World Bank/IMF
a) CAFOD/Focus on the Global South urge the following measures:
b) the IMF to be confined to preventing a breakdown in trade caused by exchange rate
volatility or balance of payments difficulties.
c) no changes to the IMF's Articles, (e.g. to allow them to press capital account
liberalisation).
d) clearly separating the stabilisation role of the IMF from the World Bank's long-term
development role.
e) eliminating cross-conditionalities between the IMF and the World Bank.
f) de-linking trade, investment, good governance conditions from IMF funding.
g) restructuring the IMF to increase transparency, accountability, and equality.
h) ensuring the impartiality of IMF advice; in particular the EU and Asia should play a more
proactive role, instead of allowing the USA to call the tune.
i) encourage regional initiatives such as the Asian Monetary Fund.
Private sector debt exposure (US$ bn):
France
Germany Japan
Indonesia
4.8
5.6
23.2
Malaysia
2.9
5.7
10.5
Philippines
1.7
2.0
2.1
Thailand
5.1
7.6
37.7
S Korea
10.1
10.8
23.7
Asian Debt by maturity:
Up to 2 From 2
years
years
Indonesia
38.2
17.0
Malaysia
16.9
8.2
Philippines
8.6
4.0
Thailand
50.2
16.5
S Korea
74.3
16.4
Asian debt by sector (US$ bn):
Banks
Public
Indonesia
Malaysia
Philippines
Thailand
S Korea
12.9
10.5
5.5
26.1
67.9
6.5
1.9
1.9
2.0
4.4
UK
4.3
2.0
1.1
2.8
6.1
USA
4.6
2.4
2.8
4.0
10.0
Other
16.3
5.3
4.4
12.2
42.8
Unallocated
3.5
3.7
1.5
2.7
12.7
Non-bank
private
39.7
16.5
6.8
41.3
31.7
20
Unallocated
0.1
0.0
0.0
0.1
0.1
Total
59.3
28.8
14.1
69.4
104.1
Total
58.7
28.8
14.1
69.4
103.4
UK bank exposure to South Korea and Indonesia (estimated):
Total exposure (£ bn)
Provision (£ m)
HSBC Holdings
2.0
240
Standard Chartered
1.7
190
Barclays
0.9
100
Natwest
0.9
100
Lloyds TSB
0.6
60
(Independent, 19/1/98)
Vulnerable economies:
Short-term debt: FX
reserves (%)
South Africa
South Korea
Russia
Indonesia
Argentina
Thailand
Mexico
293
224
205
184
122
121
100
Short-term debt
(owed to banks
reporting to BIS,
June'97, $ bn)
13.2
70.2
38.3
34.7
23.9
45.6
28.2
ABBREVIATIONS
AMF
BIS
CAL
EMU
GDP
IMF
NGO
Asian Monetary Fund
Bank for International Settlements
Capital Account Liberalisation
European Monetary Union
Gross Domestic Product
International Monetary Fund
Non-government organisation
21
FX reserves (latest
IMF data, $ bn)
4.5
31.3
18.7
18.9
19.6
37.7
28.1
SOURCES
Author
Bullard, N
World Bank
ILO
Krugman, P
World Bank
Thurow, L
UNCTAD
Wood, A
Title
Taming the Tigers
Global Development
Finance
The social impact of the
Asian financial crisis
Seven habits of highly
defective investors
PREMnotes
Publisher
CAFOD/FOCUS
World Bank
Date
March, 1998
1998
ILO
8/5/98
on Internet
29/12/97
World Bank (on
Internet)
on Internet
6/1/98
Asia: the collapse and the
cure
UNCTAD assesses
UNCTAD
effects of Asian crisis on
developing countries' trade
(press release)
The blind leading the blind Bretton Woods
Project
8/5/98
undated
Articles and news reports in: The Economist; The Financial Times; The International Herald
Tribune; The Sunday Times
22