AFC

Question 0

Devaluation of currency against USD

July 1997-Jan 1998

Answer 0

Rupiah -83.6%
Baht -54.6%
Ringgit -44.9%
Peso -39.4%

Question 1

Root causes of AFC

Answer 1

Imbalanced BOP (current account deficit)

Unsupervised financial regulation

Financial policies: fixed exchange rates, high domestic interest rates, excessive foreign loans

Overdependence on foreign & non performing loans

Govt guarantees

Domino investor loss of confidence

Question 2

Stock market depreciation (1997-1998)

Answer 2

KL -79%
Bangkok -76%
Philippines -67%
Jakarta -65%

Question 3

Financial liberalisation

Answer 3

I: 1988 reforms, 100 new banks

T: 1% of all liabilities to Thais

vs

P: most significant turnout of 1980s was entry of 4 foreign 1 local bank. Limited forex activity, foreign borrowing – (1997) 45% of all liabilities to Filipinos

Question 4

P Econ reforms

Answer 4

Reforms (1970) (1984-85)

Restrictions to credit access for directors, stockholders and related interests

Limit real estate loans to 20% of bank’s total loan portfolio

Commercial banks lend max 60% of property value

Question 7

Overprotectionism

Answer 7

Thailand 52% of manufacturing firms (twice P/M 1985)

Question 8

Incompetitiveness

Answer 8

Thailand 70% increase in real wages vs other countries’ low wages

Question 9

Current account

Answer 9

(1996)
Sing 15.7%
Thai -7.9%
Indo -3.3%
Mal -4.9%
Phil -4.7%

Question 10

Unregulated financial liberalisation

Answer 10

T: 1990 IMF Article 8 remove all controls on foreign exchange transactions, 1993 Bangkok International Banking Facilities conduit for ST lending, 100% foreign ownership, tax breaks for exporters

I: Oct 1988 reform package, failure of Badan Utang Piutang Negara

M: domestic lending 170% of GDP to bumis (Permodalan Nasional Berhad), property/stocks overheating

vs

S: (1975) 6% reserves requirement for banks, liquid asset 18% (commercial banks), 10% (finance corps)

Question 11

Domino effect

Answer 11

“Malaysia was hit without real justification in 1997” Delhaise

Question 13

Side effect of maintaining high domestic interest rates

Answer 13

T: US loans 6% cheaper than domestic rates, BIBF incurred debt US$31.2b

Question 14

Foreign debt

Answer 14

(1996)
Thai 53%
Indo 57%
Mal 40%
Phil 50%

Question 15

Short term loans

Answer 15

(1997)
Thailand 66%
Indo 59%
Mal 56%
Phil < 20%

Question 16

Extent of government control

Answer 16

T: (Mar 1997) Chart Pattana party resisted FM’s plan for 10 weak firms to strengthen capital bases bc vested interests. Central bank to pump $

(June 1997) Chart Pattana resisted suspension of 16 finance corps

Question 17

Non-performing loans

Answer 17

T: (1987-1996) firms’ incremental output to capital ratio dropped 50%

I: (1992-95) property loans growing by 35%

M: property loans comprised 45-55%, total office space expected to rise by 55%

vs

P: only 3% of total loans, adopted Western standards, US trained bank managers

Question 18

Government guarantees

Answer 18

T: 1983 & 86 three major banks seriously indebted, govt bailed them out with >12b baht

I: 1992 Bank Summa collape, shareholders & senior management not accountable despite having made 55% of loans to insiders (flouted 10% limit)

vs

M: (mid 1980s) 3 banks too weak for rescue forced to reduce capital

Question 19

Government/official unaccountability

Answer 19

I: lack of transparency in lending decisions, (1994) state bank Bapindo made losses bc Golden Key Group’s main shareholder had no experience in petro-chemical industries. Loans made without contracts & adequate security

vs

M: BNM published annual reports, disclosed level of NPLs