Yueqin Yang presents

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Yueqin Yang presents:
The Asian Crisis:
A Perspective after Ten Years
W. Max Corden
Department of Economics
University of Melbourne
The Asian Crisis:
a Perspective after Ten Years
• Introduction
 Background
 Focus on four nations:
Thailand, Indonesia, Malaysia, Korea
•
•
•
•
•
•
The Boom
The Bust and The Trigger
Financial Crisis and Exchange Rate Regime
Policy Responses
Some Special Aspects of the Four Countries
Conclusion
The Asian Crisis:
a Perspective after Ten Years
The Asian Crisis:
Background
The crisis was period of financial crisis
in July 1997, and raised fears of a
worldwide economic meltdown due to
financial contagion.
The crisis started in Tailand with the
financial collapses of Thai habt. Other
Southeast Asian countries were
affected.
According to the UN, the crisis
was “perhaps the most serious
financial crisis since the
breakdown of the Bretton Woods
system in the early 1970s, in
terms of both its scope and its
effects”
The Asian Crisis:
a Perspective after Ten Years
The Boom
Financed by both local savings and by foreign capital inflow
Three forms of foreign capital inflow:
1.
2.
3.
Foreign direct investment (FDI)
Portfolio capital into local stock markets
Short-term borrowing
The Asian Crisis:
a Perspective after Ten Years
The Bust and The Trigger
•Fundamental Cause
Inevitable ending of the investment boom
Financial difficulties
•Trigger in Thailand:
Internal and External factors
collapse in exports growth rate increase in current account
deficit  exchange rate crisis (depreciation of Thai)
•Trigger of the other three countries:
Thai Baht depreciation
The Asian Crisis:
a Perspective after Ten Years
The Exchange Rate Regime and
Crisis The East Asian crisis is often thought of as a
currency or exchange rate crisis.
•Fixed Exchange-rate System: not perceive hedging
governments try to keep the value of their currencies
constant against another (usually US dollars)
•Floating Exchange Regime: perceive hedging
a currency's value is allowed to fluctuate according to
the foreign exchange market.
The Asian Crisis:
a Perspective after Ten Years
Currency Mismatch
Unhedged Foreign Borrowing
• Apply to Indonesia, Thailand and Korea
• Balance Sheet Effects
Unhedged foreign borrowing (US dollars)
A depreciation of the domestic currency
Big losses incurred by domestic banks
The Asian Crisis:
a Perspective after Ten Years
Recession
• Decline in Investment
• Financial crisis due to excessive
domestic lending and decline in
assets value
• Reduction of private consumption
• Currency mismatch on Balance
Sheet
The Asian Crisis:
a Perspective after Ten Years
The Policy Responses
• Moderate the Depreciation
• Rescue the Banks
• Keynesian Demand Expansion
Various increases in public
expenditure
Public sector infrastructure investment
Deliberate reductions in interest rates
The Asian Crisis:
a Perspective after Ten Years
Some Special Aspects of the Four
Countries
• Thailand:
Fixed-but-adjustable Exchange rate Regime(FBAR)
• Indonesia:
Economic problem interacted with political problem
• Korea:
Achieve more assistance from IMF and US
• Malaysia:
Have no currency mismatch problem
Government control on short-term capital outflow
The Asian Crisis:
a Perspective after Ten Years
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