The Asian Crisis: a Perspective After Ten Years W. Max Corden Presented by Trace Hayles

The Asian Crisis: Prelude 1997: Thailand, Indonesia, Malaysia, and Korea in the midst of an investment boom Comprised of local savings and FDI Result of favorable macroeconomic policies 3 Forms of capital inflow that fueled boom FDI Inflow of portfolio capital into local stock markets Short term borrowing by local banks

The Bubble Bursts Catalyst: Eventual slowdown of export growth in Thailand (20% to 0% year over year) 1997: Exchange Rate crisis for baht This triggered crises in the other three Asian Tigers (contagion) Free movement of capital policies – not in place in China and India

GDP Growth Country Indonesia Malaysia South Korea Thailand

Currency Crisis Outside of Malaysia, other three countries held large amounts of $-denominated short term debt With no hedging, this led to sharp depreciation Domestic banks exposed to both currency risk and credit risk

Unique Crises Thailand: FBAR Indonesia: Suharto Korea: faster recovery from larger IMF infusions Malaysia: Capital outflow restrictions

Policy Response Domestic Interest Rates Bank Rescues Keynesian Expansion

Conclusion Key factor: run-up in investment, “hard landing” after Recession was not inevitable, but events in Thailand accelerated region-wide crisis