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1997 - 1998. Economic success Annual GDP growth in the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) averaged close to 8% over.

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Presentation on theme: "1997 - 1998. Economic success Annual GDP growth in the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) averaged close to 8% over."— Presentation transcript:

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2 Economic success Annual GDP growth in the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) averaged close to 8% over the decade before the crisis Almost half of total capital inflows to developing countries –nearly $100 billion in 1996 inflation & unemployment rates both low

3 Ramifications Negative consequences –Environmental degradation –growing inequality between rich and poor –rampant corruption –social malaise Significant and real benefits –great majority of the people’s living standard –have not been erased by the crisis

4 Weaknesses in financial system inadequate financial sector supervision poor assessment and management of financial risk –growth of bad loans –state-directed lending relatively fixed exchange rates violent asset price cycles –property boom bubbles

5 Weaknesses in financial system Large amounts of short-term international capital, denominated in foreign currency

6 Corruption Transparency International’s 1999 survey of corruption –Singapore7th –Malaysia31st –South Korea50th –Philippines54thcrisis countries –Thailand68th –Indonesia96th

7 Diary of the crisis: I

8 Diary of the crisis: II

9 The cause of capital outflows Bank failure in Thailand Corporate failure in Korea Political uncertainty due to the potential for a change in government in Korea, Thailand, the Philippines, and Indonesia net outflow of $105b from Thailand, Malaysia, South Korea, and the Philippines between 1996 and 1997

10 The cause of capital outflows Contagion effects hit Malaysia, the Philippines and Indonesia The IMF’s intervention actually helped to incite panic

11 Causes of financial crisis macroeconomic imbalances structural deficiencies in financial sector loss of market confidence rising political risk

12 IMF's immediate response Help Indonesia, Korea, and Thailand arrange programs of economic stabilization and reform Approve IMF financial support for reform programs in Indonesia, Korea, and Thailand

13 IMF’s immediate response Consult with other members that needed to take policy steps to ward off the contagion effect

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15 Asian programs comprehensive reform of financial systems closure of unviable financial institutions –associated write down of shareholders' capital recapitalization of undercapitalized institutions close supervision of weak institutions increased potential for foreign participation in domestic financial systems

16 Reforms in governance break the close links between business and governments ensure that the integration of the national economy with international financial markets is properly segmented

17 Real GDP Growth (%)

18 Inflation rate (%)

19 GDP growth rate (%)

20 Impact on Japan

21 Impact on World

22 Three schools of thought

23 Revisionist: “developmental state” –Market must be mediated, regulated and guided by the state Culturalist –“Asian values” –Culture context of East Asia explains the miracle

24 Recovery from the Crisis

25 Lessons from the Crisis Better information Regulation and restraint Controlling capital flows

26 International Organizations Authority vis-à-vis sovereign governments Access to information Risk of ``creating” a crisis Globalization and interdependence


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