The Causes and Impact of the Asian Financial Crisis

Transcription

1 The Causes and Impact of the Asian Financial Crisis

2 Also by Tran Van Hoa and Charles Harvie VIETNAM'S REFORMS AND ECONOMIC GROWTH

3 The Causes and Impact of the Asian Financial Crisis Edited by Tran Van Hoa Associate Professor of Economics University of Wollongong Australia and Charles Harvie Associate Professor of Economics University of Wollongong Australia Palgrave macmillan

4 * Selection and editorial matter Tran Van Hoa and Charles Harvie 2000 Chapters 1-3, 14 Tran Van Hoa 2000 Chapters 5 and 6 Charles Harvie 2000 Chapter 9 Ph am Ngor Long and Tran Van Hoa 2000 Chapters 4, 7, Macmillan Press Ltd 2000 Softcover reprint of the hardcover 1 st edition 2000 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London wn 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act Published by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin's Press, LLC and of Palgrave Macmillan Ltd. Macmillan<!> is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. Outside North America ISBN DOI / In North America ISBN ISBN (ebook) This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Catalog Card Number: Transferred to digital printing 2002

5 To the fond memory of my parents, Mr Tran The Baa and Mrs Pham Thi Den Tran Van Hoa To my late father Charles Harvie

6 Contents List of Tables and Figures Acknowledgements List of Abbreviations Notes on the Contributors 1 The Asian Financial Crisis: An Overview Tran Van Hoa ix xi xiii xv 1 Part I Financial and Economic Crises: the Stricken Economies 2 Causes of and Prescriptions for the Asian Financial Crisis 11 Tran Van Hoa 3 Fundamental Causes of the Asian Financial Crisis: An Econometric Study 26 Tran Van Hoa 4 The Asian Financial Crisis and Prospects for Trade and Business with Thailand Sirilaksana Khoman S The Korean Financial Crisis: Is Bail-out a Solution? Charles Harvie 6 Financial Crisis in Indonesia: The Role of Good Governance Charles Harvie Part II Containing the Contagion 7 The Asian Financial Crisis and Singapore: Can it Avoid the Contagion? 133 GuyTa 8 China: A Giant with an Achilles Heel? 141 Zhao Yanyun and Li Jingping vii 3S S8 9S

7 viii Contents 9 Vietnam and the Asian Financial Crisis: How to Avoid the Contagion 150 Pham Ngoc Long and Tran Van Hoa 10 Taiwan: An Island State with Economic Insulation? 160 Tony Naughton Part III Sectoral, Regional and Global Dimensions 11 MICE in the Meltdown: An Economic Analysis of the Impact of Developments in Asia on the Meeting and Conference Industries 175 Neville R. Norman 12 Some Implications of the Asian Economic Crisis for the Non-Asian World 191 J.D.N. Perkins 13 The Asian Currency and Economic Crisis: Macroeconomic Performance and Policy 202 Malcolm Dowling 14 The Current State of the Asian Crisis and Prospects 219 Tran Van Hoa Index 223

8 List of Tables and Figures Tables 3.1 Empirical causes of growth and inflation in the G New global environment: value of trade, transactions and reserves Growth rates of foreign debt and GDP External debt ( ) Debt service ( ) Private capital influx ( ) Industrial production by major industry groups (August-October 1997) Change in the structure of export product categories Growth rates of the top 20 export product categories Supply and demand estimates of university graduates in technical fields East Asian economies' GDP per capita and real growth rates (%) Macroeconomic indicators for Korea Korea's trade, balance of payments and exchange rate (US$bn) International bank lending to East Asia (in US$) Indonesia's recent macroeconomic performance Indonesia's trade, balance of payments and exchange rate Key indicators for East Asia's banks Exchange rate changes in ASEAN-4 countries (% during 1997) Some other important indicators Economic indicators for Taiwan Savings and investment Financial market data Asian stock market performance for Domestic loans to the property sector September ix

9 x List of Tables and Figures 11.1 MICE activity indicator MAl and economic growth Projected international travellers Growth rates in exports and imports Change of asset prices and currency values Current account balance (% of GDP) Bank credit to the private sector (% of GDP) GDP growth (% year-on-year) 216 Figures 5.1 Forecasts for Korea's GDP growth in 1998 (%) Korean won January 1997-December 1997 (movement against US$) Korea composite stock price index (KOSPI) Non-performing loans as % of total loans Foreign bank debt as % of GDP, June Foreign-owned banks' assets as % of total banking assets East Asian countries' current account balances (% of GDP 1996) Gross domestic product Industrial production index Labour cost External competitiveness Current account 138

10 Acknowledgements The book is the result of the interest and enquiry the editors have had in the financial and economic crisis that has beset Asia in particular and the rest of the world in general since the middle of The crisis is unique in that, in a matter of a few months, it has completely wiped out the economic achievements or miracles attained by the dragon and tiger economies of Asia over the past two decades or so, and has caused great concern about the stability of international economic relations in North America and the European Union. It has also had a profound impact on growth, trade, business and employment throughout the world, and has caused widespread social unrest in a number of countries in Asia. The prognosis by experts in the area has been that the crisis is contagious and will cause considerable damage to Asia and the world economy, and it would take a long time for these economies to recover sufficiently. In spite of these serious consequences, the exact causes of the crisis have not been identified in a formal way and, as a result, the cures for it have not been properly provided. In fact, there is a strong debate even nowadays among the experts in the profession on the suitability of the remedies imposed by international organizations on the economies in trouble. These have created an environment of uncertainty and apprehension affecting further growth, trade, employment and monetary and fiscal policy worldwide. The book is a collection of serious attempts by well-known international experts to provide a rigorous empirical analysis with sound theoretic content of the causes of the crisis and to investigate the possible effects of it on growth, trade, employment and monetary and fiscal policy in the regional and international economies, both in the short and long term. It will provide a substantive record of the event and will provide a standard reference for all interested in the crisis, its causal determinants, the lessons learned from it, the possible solutions for it and ways to avoid similar future crises. The editors are indebted to Tim Farmiloe of Macmillan who encouraged the preparation of the book. We are also indebted to our numerous COlleagues from the various government departments, xi

11 xii Acknowledgements universities and the business community in Australia and overseas who have given their full support to the project. Last but not least, we would like to thank all our contributors for their quick responses to our initiatives and their marvellous cooperation and contribution to an important area of contemporary enquiry with significant national and international applicability. Wollongong TRAN VAN HOA CHARLES HARVIE

12 List of Abbreviations AFTA AMC ASEAN ASEAN-4 BIBF bn BOP BT CA CAR Cif CNY CPI D DLT DRAM DW EIU FDI FEI FOB FRA G4 GB GDP GNP IBRA IMF KMT KOSPI MAl MICE mn ASEAN Free Trade Area Asset Management Corporation (Association of South East Asian Nations) Indonesia, Malaysia, Singapore and Thailand Bangkok International Banking Facility billion Balance of payments baht current account capital adequacy ratio cost, insurance and freight Chinese Yuan consumer price index debts long-term external debts Dynamic Random Access Memory Durbin-Watson The Economist Intelligence Unit foreign direct investment foreign equity investment free on board Financial Restructuring Authority Thailand, Indonesia, Malaysia and Korea government budget gross domestic product gross national product investment Indonesian Banking Restructuring Agency International Monetary Fund Kuomintang Korean Composite Stock Price Index MICE Activity Indicator meetings, incentives, conferences and exhibitions million xiii

13 xiv List of Abbreviations NBER NIES ODA OECD OLI OLS P PPP PS R&D RG RP rp SAR (Hong Kong) SOE TFP tn TNC IT VND WTO National Bureau of Economic Research newly industrialised economies official development assistance Organization for Economic Cooperation and Development ownership-location-internalization ordinary least squares inflation purchasing power parity peso Research and Development ringgit rupiah rupiah (standardised to RP) Special Administrative Region state-owned enterprises total factor productivity trillion transnational corporation terms of trade Vietnamese dong World Trade Organization

14 Notes on the Contributors Malcolm Dowling is Associate Professor, Department of Economics, the University of Melbourne, Australia, and formerly an Assistant Chief Economist at the Asian Development Bank. Charles Harvie is Associate Professor of Economics at the University of Wollongong, Australia. He was previously a Lecturer in Economics at Loughborough University, UK. Sirilaksana Khoman is Professor and Dean of the Faculty of Economics, Thammasat University, Bangkok, Thailand. Jingping Li is an economist in the Department of Statistics and Economics, the Renmin University of China, Beijing, China. Pham Ngoc Long is Senior Expert in the Central Economic Committee, Government's Office, Hanoi, Vietnam. Tony Naughton is Professor of International Finance and Head of the School of Accounting and Finance, Griffith University, Australia. Neville R. Norman is Associate Professor, Department of Economics, the University of Melbourne, Australia, and Economic Consultant. J.O.N. Perkins is Emeritus Professor of Economics, Department of Economics, the University of Melbourne, Australia. Guy Ta is Lecturer in the School of Finance and Economics, the University of Technology, Sydney, Australia. Tran Van Hoa is Associate Professor of Economics at the University of Wollongong, Australia. He has taught widely in universities in Australia, Asia and the USA. Yanyun Zhao is Professor of Economics and Chairman of the Department of Statistics and Economics, the Renmin University of China, Beijing, China. xv