EAST AND SOUTHEAST ASIAN NIEs:4 Late 1990s financial crisis.
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EAST AND SOUTHEAST ASIAN NIEs:4 Late 1990s financial crisis
Risks of EOI development Strategies Vulnerability to external shocks self-limiting nature of dependence on low cost labor as an economic development strategy sudden changes in consumer demand technological change exchange rate movements protectionist policies by industrialized economies
My perspective on the late 1990s East Asian “boom and bust” cycle Steven Radelet and Jeffrey Sachs, Harvard Institute for International Development Don’t simply focus on what these NIEs did wrong. A more even- handed treatment. External actors were also at fault.
Government budgets registered regular surpluses Overall central gov’t budget balance as % of GDP
Inflation levels remained below 10% sovereign debt was low or falling (Philippines and Indonesia) very high domestic savings and investment rates growing foreign exchange reserves favorable world market conditions
What indicators of increasing financial vulnerability SHOULD HAVE been picked up???
Growing current account deficits Balance of payments, 1985-1996
Financial trends: sharp increase in short term debt Short-term debt and reserves, June 1997
Proximate causes of the withdrawal of foreign funds BANK FAILURES. Especially Thailand. Role of lending to property companies which got hit by steep falls in property markets. CORPORATE FAILURES. Especially Korea. Hanbo Steel collapses in January 1997. Then Sammai Steel and Kia Motors. Puts merchants banks under pressure. Channels for foreign borrowing.
INTERNATIONAL INTERVENTIONS. Recommendation by IMF of immediate suspensions or closures of financial institutions. Actually helped to incite panic. FOREIGN INVESTORS. Fail to distinguish between healthy and unhealthy projects and settings.