Download East asian financial crisis

Kimberly Husa ; Miri Nam
EAST ASIAN FINANCIAL CRISIS
The Asia’s Experiences
 East Asian countries were remarkable in
developing world until 1997
 Rapid growth rate brought them far up
development scale ; put several in striking
distance
 Overwhelmed by financial crisis
 Shock by speed with East Asia’s economic
success turned into economic chaos
The East Asian Economic Miracle
 South Korea
- Desperately poor nation in the 1960s
- Launched economic reforms in 1963
- Increase in per-capita GDP by factor of 10
 More outstanding was economic parallel rise
- Hong Kong, Taiwan, and Singapore in 1960s
- Malaysia, Thailand, Indonesia and China in
1970s-1980s
The East Asian Economic Miracle
(Cont.)
 Growth Regimes
- Depending on active role of government
among industries exists (i.e. South Korea)
or not (i.e. Hong Kong, Taiwan)
 Types of Growth
- South Korea, Hong Kong :
Domestic Entrepreneurs
- Taiwan, Singapore :
Multinational Firms
The East Asian Economic Miracle
(Cont.)
What Did East Asia Do Right?
 Success Ingredients
- High rates saving and investment:
Saved 34% of GDP
- Strong emphasis on education:
High enrollment rates in basic education
- High degree of openness, integration:
To world market if not free trade
The Asian Weaknesses
 Productivity
- Relatively little increase in output per unit
of input
- Convergence toward Advanced-country
output per capita mainly appeared
- Due to rapid shift of workers from
agriculture to industry, rise in educational
level, and increase in capital-labor ratio
The Asian Weaknesses (Cont.)
 Banking Regulation
- Poor state in most Asian economies
- Moral Hazard :
Excessive lending led to unsustainable
boom in Asian economies ; This boom
caused declining prices and failing banks
The Asian Weaknesses (Cont.)
 Legal Framework
- Lack for dealing with companies in trouble
- Weak bankruptcy law
- Due to astonishing economic growth made
corporate failures rare event
 Why paid much attention to performance of
East Asian Economies?
- So spectacular although every economy has
weaknesses
The Asian Financial Crisis
 Started on July 2, 1997
 Devaluation of Thai baht
- During 1996, it became apparent in nation’s
real estate market, then in stock market
- Accelerating loss of foreign exchange
reserves in 1997
- Controlled 15% devaluation
- Despite small economy, sharp drop in
Thai currency affected neighbor countries
The Asian Financial Crisis
(Cont.)
 Effects on Neighborhood
- Economic slowdown in Japan
- All afflicted countries except Malaysia
turned to IMF
- In Spite of IMF’s aid, Crisis was sharp:
Growth rate to a sever contraction in 1998
- Worst case :
Indonesian rupiah lost 85% of value
The Asian Financial Crisis
(Cont.)
 Results
- Mass unemployment
- Collapse of confidence
- However, it forced to dramatic reversal of
troubled Asian economies
 “V-shaped” in downturn of East Asia
- Growth returned in 1999
- In general, investment rates remained
depressed and CA remained in surplus,
sometimes substantially so.