AFC

Question 1

what were the causes of the AFC?

Answer 1

1) financial weakness
- unbridled financial liberalization
- negative impact of financial policies of growth
- over dependence on ST foreign loans
- cronyism breeding inefficiency and protectionism

2) structural weakness
- unsustainable export growth
- BOP current account deficits

3) currency crisis
- inability to maintain dollar peg
- contagion

Question 2

what happened due to unbridled financial liberalisation?

Answer 2

• unbridled foreign capital inflows, and a domestic lending boom
• due to lack of regulation, channeled into unproductive things and never returned

Question 3

evidence of unbridled financial liberalisation

Answer 3

Thailand - IMF Article VIII (1990) removed all controls on forex transactions

Indonesia - October 1998 reform package loosened requirements for the application of banking licenses, resulting in a sudden increase in the number of banks (more than 100)

Question 4

evidence of unbridledness

Answer 4

Indonesia - Badan Utang Piutang Negara (BUPN) was a government body meant to collect overdue debts but it was completely ineffective. large loans made to Golden Key Group by Bapindo (1994) without written contracts

Malaysia - government bank loans at an unseen-before level: 170% through National Equity Corporation. also, loans were channeled very poorly, into stocks/the overvalued property market

Thailand - Bangkok Bank of Commerce engaged in fraudulent behavior, making bad loans to politicians without sufficient collateral

Question 5

financial policies of growth resulting in……

Answer 5

overvaluation and overconfidence - and even more borrowing

eg the fixed exchange rate/currency peg to USD (all countries except SG) prevented fluctuations of the domestic currency and protected investors, but FUCKED THEM OVER when they couldn’t maintain the peg

high domestic interest rates attracted FDI

Question 6

overconfidence/overvaluation

Answer 6

Malaysia - 1996 boom in the Malaysian stock market led to overheating of stock and property markets

Thailand - 56% change in stock market indices, 1991-1993

high domestic interest rates meant that it was cheaper to borrow in foreign currency, leading to excessive foreign borrowing

Question 7

cronyism/protectionism

Answer 7

our favourite Roberto Benedicto example

Bangkok Bank of Commerce was bailed out w nearly 7m USD despite fraudulent behavior

Thai effective rate of protectionism for manufacturers at 52%

Question 8

inefficiency as a result of protectionism

Answer 8

Thailand - export growth rate slowed from 28% to 0% by mid 1990s

Question 9

structural weakness

Answer 9

inability to transition to EOI

BOP deficits - Thailand -8% of GDP, M’sia -10%

Question 10

why was Philippines superior?

Answer 10

relative transparency, proactive supervision

• -> Bangko Sentral ng Pilipinas the monetary authority also in charge of financial regulation
• -> far fewer short term loans than other countries - 50%
• -> non performing loans at only 3% compared to Thailand’s 8%, Malaysia’s 5.3%

limited growth = limited impact
only 4 new foreign banks since 1980s vs Indo’s 100+

reforms from previous crises
restriction to credit access for related individuals - was actually adhered to unlike Indo
limitation of 20% real estate loans per bank 1997

Question 11

bureaucratic paralysis due to pol structs

Answer 11

Thailand - weak and indecisive multi-party coalition which hindered decision making

Chart Pattana hindered closing down of 10 weak firms and bailed them out instead

Indonesia - Suharto had too much power and also a tendency to flip-flop on his decisions ultimately causing a loss of faith from investors

Question 12

superior Singapore

Answer 12

15.4% surplus 1997

no external debts: dependence on FDI, not loans

sound economic planning: 6% reserves requirement for banks since 1975
when the crisis hit, SG immediately performed a cost-cutting package