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.
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