About ThailandMonday, August 11, 1997, after a month of vertical
fall of the baht, the Thai government and the International Monetary
Fund (IMF) develop a rescue plan to leave Tokyo Thailand currency
crisis. Thailand will
receive $ 16 billion in emergency loans 4 billion from the IMF, Japan 4
billion, $ 3 billion from the World Bank, a billion each rich countries
of the region (Australia, Hong Kong, Singapore, Malaysia) and 500
million of Indonesia and South Korea.The fall of the baht
led to widespread monetary crisis.Rising deficits ...Developing
countries have a large current account deficit, import of goods and
services exceeded their export. This trend is reversed.In
the first half of the 1990s, the wages of Thais have increased 83%
while the cost of living increased by only 27%. The
wages of textile workers is now $ 1.4 per hour on average, almost three
times higher than in China or Indonesia where workers are paid less than
50 cents an hour.Result of this loss of competitiveness, imports are
set to grow faster than exports. In 1992,
imports increased by 5.3% and exports by 12%. In 1995, exports climbed 20.6% while
imports recorded a boom of 23.2%. In
1996, exports were not progressing any more: the current account
deficit widened from 5.5% and GDP in 1992 to about 8% in 1995 and 1996.Is financed by
capital inflows ...By purchasing foreign currency in order to finance its
current account deficit, the Thai policy was to'' attract foreign
capital, so that purchases baht offset purchases of dollars needed to
pay for imports.In
1996, the surplus in its capital account, net inflows of foreign
capital, 10% of GDP. The stability of the baht was a major selling point for
investors who could benefit from much higher returns than investments in
non dollar currency risk.In contrast, foreign direct investment (FDI)
accounted for just 10% of capital flows which did not favor the
modernization of Thai companies. In 1995, FDI was $ 1.9 billion
while foreign debt stood at $ 56.8 billion and a third external debt
consisted of short-term loans.According
to statistics gathered by the U.S. bank Goldman Sachs, the total
external debt reached 43% of Thailand's GDP.Inflating a bubble
that bursts ...The
financial markets are poorly developed in emerging countries, bankseconomy
financed by loans. Economic growth and wage increases were tempted
to buy Thai comfortable accommodation.10% of loans granted by commercial banks
and 25% of loans granted by credit institutions were specialized for
real estate at the end of 1996.According to the Deposit on nearly
800,000 homes for sale in Bangkok in late 1996, 400,000 have not been
sold. As a result, developers have led the
banks in their bankruptcies. Today, the losses of
the banking system are estimated to be at least 14% of GDP, or $ 30
billion, and perhaps much more.Foreign capital is indirectly responsible for real estate
speculation. The stability of the baht Thai
banks allowed to borrow from foreign banks easily, facilitating loans to
property developers and making delicate Thai banking systemEnd of 1996 the debts of
private banks Thai foreign banks reached $ 70.2 billion, half of which
was due to Japanese banks.What triggers the monetary crisis.In emerging countries, banking crises
are often the first signs of currency crises. Currencies of these are particularly vulnerable to loss of
confidence of foreign investors and creditors. They renew their less short-term
loans and demand prompt payment of their maturities, which disrupts the
delicate balance of the current account deficit financing.Loss of investor
confidence has resulted in a drop in 1996 34% of the Bangkok Stock
Exchange. The fall was
accelerated in 1997 with a further decline to 45% at the lower of June. Faced with this situation, Thailand found itself
in need of foreign currencies, both to finance its deficit and repay
its debts. Buyers baht decreasing, sellers
became the majority.To prevent its decline over the central bank
began by defending the baht by providing emergency loans to banks to
prevent panic Thai foreign creditors. In a
few months, she has lent $ 19 billion to financial institutions in
Thailand and spent more than half of its $ 33 billion of foreign
exchange reserves to support the Baht. The bubble
was too big, July 2 Thailand must resign himself to abandon its fixed
exchange rate system and devalue the baht. Investors are panicking.As the dollar fell,
securing the baht to the U.S. dollar was not difficult to support and
did not really affect the country's external competitiveness. The only harmful effect was to draw too volatile capital. But when the dollar has rebounded from the spring of
1995, maintaining parity baht more expensive for the Thai economy.The relative
increase of Baht hung dollar has accelerated the loss of
competitiveness relative to other currencies and higher interest rates
to defend the currency necessary choked a little more growth, as in
France between 1992 and 1995 and the abandonment of the European Monetary
System.After the crisis: the impact of the devaluation.Economic growth should be stopped
net new forecasts for 1997 announcing a stagnant 0.5% or 0.8% of GDP,
even a recession. Inflation
is expected to accelerate from 4% before the devaluation plus 7% next
year.The economic consequences for the
rest of the world are less impressive.Japan would be the most affected, because the four dragons
represent 12% of Japanese exports throughout Asia and absorbs 37% of
exports japanese. These figures are lower for the
United States (4% of exports to the four dragons and 15% to Asia) and
even lower for the European Union (6% of exports to Asia, 2% only to the four dragons).U.S. bank Goldman Sachs has
assessed the impact of a decrease in domestic demand in ASEAN countries
in stagnant instead of growing by 5% per year. According
to her, this would result in a 10% drop in imports from these
countries. Japan would be the most vulnerable to the slowdown of the
economy, because it would reduce GDP growth by 0.11%. Contagion
would be negligible for the United States and Europe, GDP growth would
be less than 0.04%.For
JapanIn 1985, the Yen rises sharply from 200 yen to the dollar and 120
yen to the dollar: it is the shock of endaka Yen. Companies issue on international capital
markets bond options to purchase shares at a price higher than 5% of the
exercise price. For example, if the action of a company X is 100 FF
on the day of the purchase of a bond of the same company X, the
purchaser may at any time during 5 years, buy a share X 105 FF. The share price increases.For businesses, this strategy is a source of almost
unlimited funding and refunding free in action they emit obligation
without having to dip into their cash flow. Companies emit 600 billion dollars of obligations between 1987
and 1989.For investors buy bonds that convert into shares
by paying cheaper than current prices. Purchases
are driving up the price of shares and enable companies to strengthen
cross-ownership between firm of the same keiretsu.Banks with a
broad portfolio of financial and equity share property, see leu capital
increase. Borrowers used their portfolio as
collateral loan guarantee and used the leverage to invest more.Shares are overvalued: Some actions was worth 160 times what
they reported each year against 15 to 30 times on Wall Street.In 1989, Yashuhi Mieno attacks the
bubble before it implodes on its own. by raising the rediscount rate, credit
becomes more expensive and investor expectations are reversed. Speculators discovered panic prices fall: the crash
of 1990.Krah the real estate and land come next. Eight years after the prices continue to fall and
the collapse of the financial bubble in the Japanese heritage melts a
million billion which represents three times the entire French heritage.Niponnes companies
reduce their investments for their surplus production capacity, they
lack cash and experience a decline in their profits.Banks reduce the distribution of funds and
the state budget is altered by the contribution to the rescue of
financial institutions in bankruptcy. The state debt. Public
debt (taking into account the borrowing savings and local) reach 8000
billion dollars. In 1995, the budget deficit is 7.6% of GDP. The crisis is
larger than 1945. Asset
prices collapsed and producer prices fell by 6% in five years.There are similarities in crisis of 1997 with that of 1990."The
term crisis covers sudden and sharp stock market indices and exchange
rates" in several Asian countries.In 1997, one
dollar is worth 3,000 rupiah, Thai baht and 25 in 1998, $ 1 worth
12,000 rupees and 55 Thai baht. The Korean won lost 35% of its value. Malaysian ringgit 30%.In
one year the market capitalization of the following places lost 84% in
Thailand, 70% in Korea, 63% in Malaysia, 58% in Indonesia.Real estate prices are
falling and real estate firms listed in Bangkok lose in 1 year 92% of
their value.Indices of real estateCountry 1992 1993 1994 1995 1996 1997 Hong Kong 554 1392 862
1070 1682 941 Taiwan 57,137,109 59 55 55 Philippines 39 81 80 87 119 59
Indonesia 66 40 214 140 112 143 Malaysia 126 369 240 199 294 64 168 367
232 192 Thaïlade 99 7 Singapore 250 541 548 614 648 357According
to Arnaud Parienty, the unfolding of the crisis is suivan: first of all
asset markets return which reduces the euphoria of investors and
severely deteriorating the situation of banks.The loss of confidence led to a money lender reversal of
capital flows. Thailand, in 1997 the output
of short-term capital reached 12.6% of GDP. Despite continued
direct investment, private capital balance a deficit of more than 10
percentage points of GDP. Baht
can no longer remain attached to the dollar: the currency crisis in
Thailand. Foreign lenders are convinced that the exchange rate of the
baht is untenable capital outflow increases.The third step in the scenario is the distrust of
lenders to other Asian countries. This is due to two reasons:On the one hand, the exports of being
competitors, who do not lose their competitiveness devalue the other
banks' liabilities Japanese, Taiwanese or Korean South-East Asia are
very important.Finally,
the clamp closes. Financial intermediaries are short-term debt in
foreign currency, the authorities are caught in a dilemma: if they let
the currency fall, debt (in local currencies) explode. If they defend their
currencies by raising interest rates sharply, financial expenses skid.The reversal of
expectations is it due to panic or degradation fundamentals?
Impact on the real
economy in AsiaThe financial crisis on the real
economy expands Asian countries. GDP growth in these countries deteriorate as can be seen in
the following table:GDP
growthCountry 1996 1997 1998 (1st quarter) Japan -1.5
3.1 0.9 South Korea 7.1 5.8 -3.8 China 9.7 Hong Kong 8.8 7.2 4.6 5.2
-2.0 5.7 6.8 9.5 Taiwan 5.5 4.7 1.7 Philippines Indonesia Malaysia -6.2 8
4.6 8.6 7.0 -1.8 Singapore 7 7.6 6.5 Thailand 6.4 0.5 -5.5According to Arnaud Parienty, we can not
blame the Asian crisis macroeconomic policy.Indeed,
as canbe seen from the following table, the budget is balanced, the
growth rate of M2 is not very fast compared to the growth of their
actual product squi is 5 to 9% per year. Inflation is moderate:
between 4 and 8% per year.Macroeconomic management of the
five countries in crisisCountries annual growth rate of M2 Fiscal Balance / GDP 1994 1995
1996 1994 1995 20 27 27 1996 Indonesia 0.9 Malaysia 2.2 1.2 13 20 22 2.3
0.9 0.7 24 24 23 Phili ppines 0.3 Thailand 1.1 0.5 13 17 13 1.9 2.9 2.3
19 16 16 Korea 0.3 0.3 -0.1The ratio of short-term
liabilities and foreign exchange reserves is high and increasing in all
countries affected by the crisis, the level of reserves remains high.Indicators of
financial position (in%)Country Appreciation of the exchange rate 1 Trade balance 2
loans irrecoverable 3 4 Reserve Exchange South Korea 1.11 -2.5 4.8 217
0.8 14 4.9 China 26.7 Hong Kong 31.8 -1.6 3.4 20 -7 2.9 3.9 Taiwan 22.8
38.9 -4.6 14 849.3 Philippines Indonesia
17.5 188.9 -2.9 12.9 19.9 -6.4 9.9 45.3 Malaysia 4.7 Singapore 5.16
Thailand 20 April 20 -7.2 121.5 1 13.3 Real effective exchange rate
(weighted by the structure of foreign trade) between the period
1998-1990 and 19962 Balance of current
account to GDP 1994-19963
Share of loans where repayment is not honored in total assets in 19964 Report of short-term debt and
interest on total debt to foreign reserve in 1996Interp
rétation crisis by Radelet and SachsIn
June 1997, before the outbreak of the crisis, the reserves are 20
billion in Indonesia, 34 billion Korea, Malaysia 27000000000,
10000000000 and 31000000000 Philippines in Thailand. This represents 3-5
months of imports.According
to Steven Radelet and Jeffrey Sachs crisis eest of a panic mouveement
irrational. Indeed,
imbalances affecting East Asia "were certainly not serious enough to
ensure a crisis of this magnitude from that place in 1997. "According
to this theory, the crisis can be explained by a combination of panic
on the part of investors, governments errors in their reactions Ala
fautees crisis and interventions in the organization of international
institutions." The shock is formed by
the massive reversal of capital flows between 1996-1997. The five most affected countries have
moved from a net entry of $ 93 billion in net outflows of $ 12 billion, a
difference of 105 billion dollars and 77 vienneent loans from
commercial banks. These
authors show that the origin of the crisis in East Asia is due to a
massive withdrawal of capital.This results on the one
hand the abandonment of unsustainable parity (Thaïlandaiseaurait Bank
spent $ 9 billion in two weeks), and secondly the increase in interest
rates. Indebted borrowers or unhedged bear the brunt of these two
instruments la.combinaison. The decrease in the exchange
rate reduces the banks' capital. The increase rate multiplied
delinquencies. According to these authors, "Panic initial and
mismanagement by the authorities to be the main cause of this crisis. 'Interpretation of the crisis according to Roubini
and KrugmanAccording to Nouriel Roubini and
Paul Krugman fundamentals had deteriorated. But
it remains to explain why the market did not anticipate the crisis. Indeed,
until the outbreak of the crisis (except the stock market of Thailand),
capital headed for Asia. More risk premiums on Asian investments have
not increased but decreased. (Ie the spread)! Finally, the notation (the rating) Asian borrowers has
not been affected by the crisis.According to P Krugman, the sudden reversal of
capital flows is that investors believe that the lender of last resort,
faced with a growing body of default is no longer able to fulfill its
mission. For example, when the
Indonesian central bank could no longer guarantee repayments, investors
have withdrawn their capital.What were the financial imbalances?Gross Domestic Product (GDP) is less than 200
Thïlande billion.
