1. The Future of Global Capitalism, Part I The 1997 Asian Financial Crisis Does the globalization of financial markets promote stability and confidence or does it create instability and crisis?

2. The Future of Global Capitalism, Part I The 1997 Asian Financial Crisis Stability and Confidence! Maximizes the efficient use of capital Improved capacity to borrow (and lend) Diversification reduces risk

3. The Future of Global Capitalism, Part I The 1997 Asian Financial Crisis Instability and Crisis! Promotes artificially high expectations on rates of return Facilitates reckless borrowing (and lending) Capital mobility exacerbates crises (capital flight)

4. The International Monetary Fund (IMF) Bretton Woods 1944 (1945) Washington D.C. 2,680 staff 184 member countries

5. The International Monetary Fund (IMF) Financial Stability Eliminate restrictions on foreign exchange transactions Lender of last resort (IMF loans/bailouts) US$338 billion in Quota Resources (September 2007) Conditionality

6. The Anatomy of a Market Failure: the 1997 Asian Financial Crisis Rapid growth and the “Asian Economic Miracle” Japan The success of the “Asian Tigers”: Singapore, Taiwan, South Korea, Hong Kong

7. The Anatomy of a Market Failure: the 1997 Asian Financial Crisis “Crony Capitalism” Reckless lending and borrowing Support for lending by industrialized states (part of development agenda) Poorly regulated and weak banking system

8. The Anatomy of a Market Failure: the 1997 Asian Financial Crisis No return on investment Confidence in Thai economy, and Bhat, falls Thai central bank attempts to protect currency value, but spends its foreign reserves to do so Baht is devalued

9. The Anatomy of a Market Failure: the 1997 Asian Financial Crisis Drop in value of Bhat leads to inflation, unemployment IMF bailout fails No bailout from US (unlike in Mexico) Confidence in Asian markets shaken: investors pull money out and “contagion” begins

10. The Anatomy of a Market Failure: the 1997 Asian Financial Crisis Investors pull money out of Asia Currencies devalued as economic performance drops in Malaysia and Indonesia Companies collapse or are weakened; unemployment and prices rise Political instability

11. The IMF Response Huge Loans Conditions Debate: – IMF = conditions required to combat corruption and bad economic policies – Critics = conditions an extension of western economic and political interests

12. The Anatomy of a Market Failure: the 1997 Asian Financial Crisis Contagion Spreads to South Korea (ROK) Investment drawn out of ROK by the growing crisis South Korean Central Bank tries to defend the Won and confidence in ROK economy IMF bailout

13. The Anatomy of a Market Failure: the 1997 Asian Financial Crisis Contagion Spreads to Russia Investment flowing out of Asia is seeking a safe haven…most goes to U.S. and Europe, but some goes to the “emerging market” of Russia Ruble collapses

14. The Lessons of Contagion Don’t let banks (and investors) lend recklessly; Don’t let “bubbles” get of hand; Take prudent, sound economic measures; Don’t panic! Does the globalization of financial markets promote stability and confidence or does it create instability and crisis?