1. The East Asian Crisis: Causes and Effects Joseph E. Stiglitz Senior Vice President and Chief Economist, World Bank

2. Outline of the Talk I. Key Aspects of the East Asian Crisis II.Prospects for East Asia III.Impact on the U.S. Economy IV.Impact on Developing Countries

3. Key Aspects of the East Asian Crisis 1.Not public sector profligacy, but private sector borrowing. 2.Not overall indebtedness, but the type of borrowing and use of funds. 3.Not just borrowers, but also lenders.

4. Public Sector Balances: Latin America versus East Asia

5. Inflation: Latin America versus East Asia

6. Total External Debt-Exports Ratio 1996 Percent

7. Short-term Debt-Exports Ratio 1996 Percent

8. Office Vacancy Rates, 1996 (% of space vacant) SOURCE: JP Morgan Data and Estimates 1996 1997-99 (projected)

9. Non-Performing Loans (as a % of total loans) Percent

10. Spreads on Brady Bonds & U.S. High-Yield Bonds

11. Foreign Currency Debt Ratings Country June 1996 June 1997 March 1998 IndonesiaBBB B KoreaAA- BB+ MalaysiaA+ PhilippinesBBBB+ ThailandAA BBB- Source: Standard and Poor’s

12. Prospects for East Asia 1. Weak real economies. 2. Large current account adjustment, but mostly due to declining imports. 3. Export-led recovery depends on regional growth prospects.

13. Consensus Growth Forecasts for 1998 Source: World Bank, Development Prospects Group

14. Quarterly Real GDP Growth (Q/Q, seasonally adjusted annual rate) Source: JP Morgan Global Data Watch

15. Stock Market Indices (US$, June 30, 1997 = 100)

16. Exchange Rates (Local Currency/ US$ June 30, 1997 = 100) Indonesia on right axis

17. Korean imports, exports, and current account Import growth Export growth Current account balance

18. Yen-Dollar Exchange Rate

19. 1. U.S. has a diversified trade base. 2. U.S. benefits from flight to quality. 3. U.S. benefits from falling import prices. 4. U.S. benefits from falling oil prices. Impact on the U.S. Economy is Likely to be Small

20. Shares of U.S. Exports, 1996 SOURCE: International Monetary Fund, Direction of Trade Statistics

21. US 30-year Treasury Yields Percent Jun ‘98

22. US Import Prices May 1998, % change year-on-year Percent

23. Oil and Non-Oil Commodity Prices Index (1990=100 May’98

24. Quarterly US Growth

25. US Trade Source: U. S. Bureau of the Census

26. Measures of Hourly Compensation, Wages and Prices Interval 199619971998 Prices GDP Prices (chain)Q1/Q1 2.32.21.4 Total CPIApr/Apr 2.92.51.4 Core CPIApr/Apr 2.72.72.1 Wages and Hourly Compensation ECI Compensation per hr.Mar/Mar 2.73.03.5 ECI Wages & Salaries per hr.Mar/Mar 3.23.44.0 Health Insurance per hr.Mar/Mar -0.30.22.2 Productivity Non-farm businessQ1/Q1 1.81.32.1

27. 1. High trade volume multipliers 2. Adverse terms of trade 3. Fall-off in capital flows and rising spreads 4. Forced policy response Adverse Impact on Developing Countries Greater Than on OECD

28. Simulated Impact of Asian External Adjustment on GDP Growth SOURCE: World Bank, February 1998

29. Terms of Trade in 1998 (% change over previous year) SOURCE: World Bank, February 1998

30. Gross Private Capital Flows to Developing Countries, 1997-98 (billions of US dollars, monthly average rates) SOURCE: World Bank $12.7bn

31. Spreads on Sovereign Euro-Bonds

32. Growth Projections Downgraded GDP growth, 1998 Percent June 1997 Feb 1998 Source: World Bank, February 1998.

33. Changes to the 1998 GDP Growth Forecast (percentage point change from June 1997-present) Source: World Bank, February 1998.

34. Growth in Developing Countries (annual average percentage change) Source: World Bank, February 1998.