1. What’s Going on in East Asia

2. The Issues Today  A defining event of the l990s decade has been the miracle and meltdown of East Asian growth  Will there be a recovery to rapid growth?  What will be the implications of the “new” economy?

3. What’s Going on in East Asia: From Miracle to Meltdown  --The experience:  --the growth miracle  --the l997 meltdown  --the recovery Optimism Stability Pessimisim 19971997

4. GDP 000$ per capita Years from Start Ja US Th Ch Tai Ko Ph Ma The S-Curve of East Asian Growth 20- 2- 5- 10- Hk Si 1020304050

5. The East Asian Development Ladder Flying Geese Pattern

6. Stage 1 Stage 2 Stage 3 Stage 4 Primary Products Labor Intensive Manufactures Hi Tech Manufactures Services (high level) Abundant cheap land and labor Low Cost Labor Capital Intensive, Technically Sophisticated Products Domestic and International Services The Development Ladder--Stages

7. The Relay Race More Advanced Country Less Advanced Country Industry

8. Stage 1 Stage 2 Stage3 Stage 4 The Stages of the Product Cycle Process 1950-65 1965-1980 1980-1995 1995-2010 China Korea Taiwan Philippines Malaysia Indonesia Thailand Singapore Japan Hong Kong Thailand Malaysia China Singapore HongKong Taiwan Singapore Hong Kong Korea Japan Taiwan Singapore Hong Kong Korea Japan Indonesia Philippines Vietnam Thailand China Malaysia Taiwan Korea Japan Laos Cambodia Myanmar Indonesia Philippines Vietnam Thailand Malaysia China Indonesia Philippines

9. Where Does the “New Economy” fit here?

10. The Sources of East Asian Growth u Input-based Growth  Savings and Investment  Foreign Direct Investment u Productivity, Technical Change

11. Investment and Growth

12. Exports and Growth

13. The Sources of East Asian Growth: Policy  Export Promotion versus Import Substitution  Exchange Rate Policy  Macro Policies For Stability  Selective Industrial Policies

14. The East Asian Crisis: What Happened?

15.  Thailand was the first country in trouble  1996 Unsustainable Investment Boom fed by inflow of capital  Loss of competitiveness : Trade slowdown Trade deficit 8% of GDP  late l996 attack on the baht

16. The East Asian Crisis: What Happened?  early1997, collapse of the finance companies and bank runs  July l997 collapse of the baht  Intervention of IMF u high interest rates, credit crunch u cut in budget deficit  Drop in demand, investment, consumption, etc

17. The East Asian Crisis: What Happened?.  1998 Deep Recession  Decline in GDP -10 percent, industrial production -20%  Change of government.  Late l998, signs of stability at low level  1999 to 2000 recovery at 5% rate

18. Spread of the Crisis  Indonesia  Malaysia  Korea  but not China  Russia  Brazil  The World?????

19.  Was it a business cycle swing or bubble economy?  Was it institutional (cronyism)?  Was it caused by capital flow liberalization?  Was it a loss of confidence in Asian currencies (contagion)?  Was it caused by international speculators? The East Asian Crisis: What Went Wrong?

20.  Domestic Considerations  Speculation and the Business Cycle Cost and Capacity pressures  Overinvestment  Failures of Regulation  Crony Capitalism The East Asian Crisis: What Went Wrong?

21.  International Factors  Overvaluation of Exchange Rate  Loss of Trade Competitiveness  Excessive Short Term Capital Inflows  International Contagion The East Asian Crisis: What Went Wrong?

22. What Happened to Exchange Rates?

23. Evaluation of the Thai Business Environment Before the crisis 1995-6 After (8/98) (8/99) (8/00) (%) (%) (%) (%) + 10, very optimistic28.6 2.4 1.5 1.1 +5, moderat. optimistic45.2 4.9 24.7 27.2 0, uncertain 11.9 11.0 34.5 25.0 -5, worried13.1 37.8 36.1 41.3 -10, very pessimistic10.2 43.9 3.1 5.4

24. The East Asian Crisis:What Happened?  Evaluation of Return to Rapid Growth in Thailand u (8/98) (8/99) (8/00) (%) (%) (%)  +10, very optimistic10.4 5.3 1.1  +5, moderat. optimistic31.2 43.3 31.2  0, uncertain 13.0 23.5 29.0  -5, worried33.8 25.1 28.0  -10, very pessimistic11.7 2.7 10.8

25. Is Recovery Under Way?  Will the recovery persist?  Will the growth miracle resume?

26. The Barriers to Recovery  Political Instability  Continued NPLs in banks (credit crunch)  Infrastructure  Education

27. Can one be optimistic about renewal of the growth process?

28. Implications of “New Economy”? u For Hardware Industry u For Software Development u For Applications

29. The Gainers and the Losers  Gainers--High tech u Taiwan u Singapore u Korea u Malaysia  Gainers--Low wages u China u Vietnam u India  Loss of Competitiveness u Thailand u Indonesia

30. u Opportunities  Openings for foreign investors  Favorable Exchange Rate  Fire Sales  Linkages to growing industries--e.g. auto parts u Barriers  Recession in local markets  Uncertainty about exchange rate  Risks of Political Change  Insufficient skilled engineers and managers Implications for Business