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1、The Asian Financial CrisisHung-Gay FungUniversity of Missouri-St. LouisPresentation OutlineDiscuss 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. companiesForeign Exchang
2、e RatesSince Since June June 1997, 1997, FX FX rates rates in in many many Southeast Southeast Asian Asian countries countries have have experienced experienced a substantial decline.a substantial decline.These These countries countries include include the the Philippines, Philippines, Malaysia, Tha
3、iland, Indonesia, and Korea.Malaysia, Thailand, Indonesia, and Korea.Many Many of of these these countries countries linked linked their their exchange exchange rates rates to to the the U.S. U.S. dollar dollar before before the the currency crisis.currency crisis.Change in FX rates (6/30/1998) FX:1
4、 $US FX:1 $US FX: 1 $USFX: 1 $US % % 6/30/986/30/98 6/30/976/30/97changechange Chinese yuan 8.281 8.289 +0.09HK dollar 7.745 7.747 +0.03Indonesia rupiah 14568.891760 -87.92Japanese yen 138.31 114.61 -17.58Malaysian ringgit 4.1 1.827 -55.44Korean won1370 641.4 -53.18Philippine peso 41.5 19.08 -54.02T
5、hai baht 42.16 17.9 -57.54Immediate Results of CrisisIn addition to currency devaluation:Collapse of their Stock Markets (all Southeast countries);Call for an IMF rescue plan in thePhilippines, Thailand, Indonesia and Korea;Bankruptcy and financial reforms(all Southeast countries).What Happens to Ca
6、pital Flows?1994199419951995199619961997*1997*Private flows, net 40.5 77.4 93.0 -12.1Equity Investment 12.2 15.5 19.1 -4.5Private Creditors 28.2 61.8 74.0 -7.6Source: Institute of International Finance, Inc., “Capital Flows to Emerging Economies,” January 1998.Reasons for the Currency CrisisDecline
7、in Export EarningsExcessive and Risky InvestmentCurrent Account DeficitOvervalued CurrencyUnderdevelopment of credit marketProperty market bubbleRegional Annual Growth Rate of Exports (%)Regional Annual Growth Rate of Exports (%)CountryCountry 19901990 19911991 19921992 19931993 19941994 19951995 19
8、961996China 18.2 15.8 18.1 7.1 33.1 22.9 1.6Indonesia 15.9 13.5 16.6 8.4 8.8 13.4 9.7Korea 4.2 10.5 6.6 7.3 16.8 30.3 3.7Malaysia 17.4 16.8 18.5 15.7 24.7 24.7 26.0Philippines 4.0 8.7 11.2 13.7 20.0 31.6 16.7Thailand 14.9 23.2 14.2 13.3 22.7 25.1 -1.3Mexico 17.7 0.7 1.4 9.2 14.2 40.3 22.6Decline in
9、Export EarningsExcessive and Risky InvestmentIncremental Capital-Output (ICOR) RatiosIncremental Capital-Output (ICOR) RatiosCountryCountry1987-19921987-19921993-19961993-1996China 3.1 2.9Hong Kong 3.7 6.1Indonesia 3.8 4.9Korea 4.0 4.9Malaysia 3.7 4.8Philippines 6.0 5.5Singapore 3.6 4.0Taiwan 2.4 3.
10、9Thailand 3.4 5.1Source: Corsetti and Pesenti (1998)Current Account Deficit(% of GDP)1990-19951990-199519961996Asian CountryAsian Country: : (average) (average)China 0.9 0.9Hong Kong 3.3 -1.2Korea -1.2 -4.8Singapore 12.715.5Taiwan 4.0 4.0Indonesia -2.5 -3.7Malaysia -5.9 -4.9Philippines -3.8 -4.7Thai
11、land -6.7 -7.9Current Account (continued)Latin AmericaLatin America1990-951990-9519961996Argentina -1.6-1.4Brazil -0.6-3.3Chile -2.6-5.4Colombia -1.7-5.5Mexico -5.1-0.6Other countries:Other countries:Israel -3.9-7.4Africa (average) -11.1-7.8Hungary -4.0-3.7Source: Bank for International SettlementsO
12、vervalued CurrencyCountryCountry 19901990 19911991 19921992 19931993 19941994 19951995 19961996Hong Kong 99.7 103.9 108.5 115.9 114.5 116. 125.5Indonesia 97.4 99.6 100.8 103.8 101.0 100.5 105.1Korea 97.1 91.5 87.8 85.2 84.7 87.8 86.8Malaysia 97.0 96.9 109.7 111.0 107.1 107.0 111.9Philippines 92.3 10
13、3.1 107.1 97.4 111.6 109.5 116.0Singapore 101.2 105.7 106.0 108.6 111.9 112.7 117.9Thailand 102.2 99.0 99.7 101.9 98.3 101.7 107.6Note: The base figure (100) is the average for the year 1990Source: J.P. MorganJapanese ModelLimit Limit bond bond market market to to support support long-term long-term
14、 growth.growth.KeepKeep savingssavings in in a a small small number number of of powerful powerful banks which arebanks which are notnot properly regulated .properly regulated .Loans Loans are are made made toto favoredfavored customers customers and and businesses businesses with with national nati
15、onal ambitions, ambitions, such such as as textiles, textiles, steel, steel, shipbuilding, shipbuilding, electronics, electronics, and and automobiles automobiles (such (such as as Japan, Japan, Thailand, Thailand, Korea, and Indonesia).Korea, and Indonesia).Size of Banking sector 1995 % of GDP1995
16、% of GDP Bond Bond Bank Bank MarketMarketLendingLendingU.S. 110% 54%Japan 74 152Malaysian 56 100Philippine 39 54Thailand 10 100Indonesia 6 57Bank Credit to Private SectorAnnual Rate of ExpansionAnnual Rate of Expansion % of GDP% of GDPCountryCountry1990-19971990-1997 19971997China 13 97Hong Kong 8 1
17、57Indonesia 18 57Japan 1.5 111Korea 12 64Malaysia 16 95Philippines 18 52Singapore 12 97Thailand 18 105United States 0.5 65June 1996June 1996June 1997June 1997Indonesia 1.724 1.704Korea 1.623 2.073Malaysia 0.252 0.612Philippines 0.405 0.848Thailand 0.992 1.453Other countriesOther countriesArgentina 1
18、.325 1.210Brazil 0.702 0.792Mexico 1.721 1.187Pakistan 0.740 2.440South Africa 4.050 3.124Zimbabwe 1.319 1.635Short-Term Debt to ReservesNon-Performing Loans(% of Total Loans)19901990199419941995199519961996Indonesia 4.512.010.4 8.8Korea 2.1 1.0 0.9 0.8Malaysia20.4 8.1 5.5 3.9Thailand 9.7 7.5 7.7 N/
19、AMexico 2.310.514.412.5Argentina16.0 8.612.3 9.4Source: Bank for International Settlements.Property Market Bubble Sale Price:Sale Price: Capital Value Capital ValuePeriodPeriodBangkok (000B/m. Bangkok (000B/m. sqsq.) .) Jakarta ($/m.Jakarta ($/m. sq sq.) .)Q4, 9066.0 3019Q4, 9167.0 2788Q4, 9260.0 24
20、82Q4, 9359.5 2327Q4, 9460.5 2358Q4, 9560.5 2179Q4, 9660.4 2250Q2, 9743.0 2267Source: Data Stream and Jones Lang Wootten.Central Business District Office Vacancy Rates19971997Bangkok15.0%Hong Kong 6.0%Kakarta10.0%Kuala Lumpur 3.0%Manila 1.0%Singapore 8.0%Shanghai30.0%Source: JP Morgan “Asian Financia
21、l Markets,” January 1998.What Really Causes A Crisis?Corruption?Korea, Indonesia, Thailand -corruptionKorea, Indonesia, Thailand -corruptionItaly Italy and and India India have have corruption, corruption, but but no no crisiscrisisBank Transparencyinadequate regulatory frameworkinadequate regulator
22、y frameworkirrational lenders?irrational lenders?Fundamental Factors-GDP growth (%)19931993199419941995199519961996Indonesia6.57.548.227.98Korea5.758.588.927.13Malaysia8.419.249.468.20Philippines2.124.394.765.67Thailand8.278.858.686.66Source: Corsetti, Pesenti and Roubini (1998).Inflation Rate199319
23、93199419941995199519961996Indonesia9.608.539.438.03Korea4.826.244.494.96Malaysia3.573.715.283.56Philippines7.589.068.118.41Thailand3.365.195.695.85Source: Corsetti, Pesenti and Roubini (1998).Savings Rates (% of GDP)CountryCountry19901990199119911992199219931993199419941995199519961996China38.138.33
24、7.740.642.641.042.9Hong Kong35.833.833.834.633.130.430.6Indonesia27.928.727.331.427.628.428.1Japan33.534.233.832.831.430.731.3Korea36.135.935.135.234.635.133.3Malaysia29.128.431.333.032.733.536.7Philippines18.718.019.518.419.417.819.7Singapore44.145.447.344.949.850.050.1Taiwan22.422.223.223.722.922.
25、921.0Thailand32.635.234.334.934.934.333.1Source: Statistical Appendix, IMF, 1997.Human Development IndicatorsCountryCountryLife-ExpectancyLife-ExpectancyLiteracy RateLiteracy RateAverage Income ofAverage Income of (years) (years) (%) (%) Poorest 20% Poorest 20% in 85 US$ in 85 US$1970197019951995197
26、0197019951995 19701970 19951995Indonesia 48 64 54 84 392 908Korea 60 72 88 98 303 2071Malaysia 62 72 60 85 431 1070Philippines 57 66 83 95 218 435Thailand 58 69 79 94 361 726Source: Radelet and Sachs (1998).Fixed Exchange Rate SystemFX rates more efficient.Imposes impediments in the FX system.Govern
27、ment guarantees investors potential upside return if FX devalues.Currency Model of Attackby SpeculatorsDue Due to to thethe “ “fixedfixed” ” exchange exchange arrangement arrangement in in many many Southeast Southeast Asian Asian countries, countries, speculators speculators start start withwith lo
28、cal local borrowingsborrowings (i.e., (i.e., borrowing borrowing from local banks).from local banks).They They then then sell sell the the local local currencies,currencies, convert convert into US dollars,into US dollars, andand sell forward contracts.sell forward contracts.They They realize realiz
29、e a a profit profit if if thethe currencies currencies devalue,devalue, because because their their US US holdings holdings can can be be exchanged exchanged for for more more local local currencies currencies to to pay pay off loans.off loans.Defenses by GovernmentsBuy Buy up up sales sales transac
30、tions transactions - - FX FX reserves reserves can can be exhausted quickly.be exhausted quickly.Jack Jack up up the the interest interest rate rate to to deter deter speculative speculative borrowings, borrowings, implying implying high high cost cost for business that leads to:for business that le
31、ads to: bankruptcies bankruptcies discouraging real investment discouraging real investment collapse of stock markets collapse of stock marketsPenalize Penalize banks banks who who lend lend money money to to speculators.speculators.The Impact of Crisis on ChinaMore imports from Korea due to lowered
32、 prices, e.g., products imported from Korea have increased, including steel (32.4%), petro-chemicals (11.8%), and textiles (9%).Chinas exports slow down.Economic growth slows down.Chinas StrategyUnder pressure to devalue its currency.However, However, such such a a decision decision is is political,
33、 political, not not economic.economic.Could Could hurt hurt its its credibility credibility as as an an Asian Asian leader.leader.Devaluation will hurt Hong Kong, a place to raise external funds via initial public offerings (IPO) for its state-owned enterprises.Chinas Strategy (continued)Ease Export
34、 Credits by encouraging banks to make loans to export-oriented companies.Relax export licenses and give tax rebates: Ministry Ministry of of Foreign Foreign Trade Trade and and Economic Economic Cooperation Cooperation issues issues more more export licenses for base metals.export licenses for base
35、metals.Exporters Exporters will will receive receive full full 17% 17% value-value-added tax.added tax.Implications and StrategiesLowered currency value implies products are cheaper to buy -Merger Activities in Asian countriesMerger Activities in Asian countriesInternational trade implicationsFinanc
36、ial reforms (bond market development and banks)Corporate StrategiesCorporate Hedging StrategiesIncreased use of hedging instruments, given the volatile FX markets (use of forward, swaps and other derivative instruments).As a long-term strategy, U.S. firms should pay closer attention in managing their economic exposure, e.g., Avons use of a balance sheet hedge in 1997.
