1990-1995 (average) 0.9 3.3 -1.2 12.7 4.0 -2.5 -5.9 -3.8 -6.7
Source: Institute of International Finance, Inc., “Capital Flows to Emerging Economies,” January 1998.
Reasons for the Currency Crisis
Decline in Export Earnings Excessive and Risky Investment Current Account Deficit Overvalued Currency Underdevelopment of credit market Property market bubble
Change in FX rates (6/30/1998)
FX:1 $US 6/30/98
Chinese yuan HK dollar Indonesia rupiah Japanese yen Malaysian ringgit Korean won Philippine peso Thai baht 8.281 7.745 14568.89 138.31 4.1 1370 41.5 42.16
Excessive and Risky Investment
Incremental Capital-Output (ICOR) Ratios Country 1987-1992 1993-1996 China 3.1 2.9 Hong Kong 3.7 6.1 Indonesia 3.8 4.9 Korea 4.0 4.9 Malaysia 3.7 4.8 Philippines 6.0 5.5 Singapore 3.6 4.0 Taiwan 2.4 3.9 Thailand 3.4 5.1
In addition to currency devaluation: Collapse of their Stock Markets (all Southeast countries); Call for an IMF rescue plan in the Philippines, Thailand, Indonesia and Korea; Bankruptcy and financial reforms (all Southeast countries).
Source: Corsetti and Pesenti (1998)
Current Account Deficit (% of GDP)
Asian Country: China Hong Kong Korea Singapore Taiwan Indonesia Malaysia Philippines Thailand
The Asian Financial Crisis
Hung-Gay Fung University of Missouri-St. Louis
Presentation Outline
Discuss briefly the behavior of the Foreign Exchange (FX) of Southeast Asian Countries. Assess different factors that lead to the currency crisis. Opportunities and Implications for U.S. companies
Decline in Export Earnings
Regional Annual Growth Rate of Exports (%)
Country China Indonesia Korea Malaysia Philippines Thailand Mexico 1990 18.2 15.9 4.2 17.4 4.0 14.9 17.7 1991 15.8 13.5 10.5 16.8 8.7 23.2 0.7 1992 18.1 16.6 6.6 18.5 11.2 14.2 1.4 1993 7.1 8.4 7.3 15.7 13.7 13.3 9.2 1994 33.1 8.8 16.8 24.7 20.0 22.7 14.2 1995 22.9 13.4 30.3 24.7 31.6 25.1 40.3 1996 1.6 9.7 3.7 26.0 16.7 -1.3 22.6
What Happens to Capital Flows?
1994
Private flows, net Equity Investment Private Creditors 40.5 12.2 28.2
1995 1996
77.4 15.5 61.8 93.0 19.1 74.0
1997*
-12.1 -4.5 -7.6
FX: 1 $US 6/30/97
8.289 7.747.08 17.9
% change
+0.09 +0.03 -87.92 -17.58 -55.44 -53.18 -54.02 -57.54
Immediate Results of Crisis
Foreign Exchange Rates
Since June 1997, FX rates in many Southeast Asian countries have experienced a substantial decline. These countries include the Philippines, Malaysia, Thailand, Indonesia, and Korea. Many of these countries linked their exchange rates to the U.S. dollar before the currency crisis.