Causes of Asian Financial Crisis in 1997-98 in Thailand

Before the crisis there was a massive borrowing in dollars. Asian banks owed more in
dollars than they held in reserves. Most of the debt was short term and financed a
spending binge. Money was foolishly invested speculative real estate. Thailand was
filled with excess phone lines, petrochemical plants and cement factories. More than
$1 billion was spent on the Muang Thing residential and commercial development
project.
A weak real estate sector was created through speculation. Businesses were unable to
pay the high interest rates. The weakened banking sector further undermined the
system as it could no longer provide sufficient loans. By 1996, unsold properties
around Bangkok began to accumulate and investors worried about defaults began
taking their money out of Thailand. As of August 1997, there were 350,000 vacant
housing units in Bangkok and many unfinished offices and empty hotels. Many
businesses were "sunset industries" in which companies churned out the same
products year after year with less profit instead of reinvesting in more modern
equipment. Thailand tried to enter the memory chip business against powerful
competitors like South Korea and Taiwan. It was hit hard when the price of these
chips crashed.
Individuals also amassed debt. People earning $350 a month were charging many
time that amount with easy-to-get credit cards and amassing huge debts buying
expensive clothes and pure-bred puppies. Interest rates had been higher in Thailand
than in the U.S. Because the baht was tied to the dollar many Thais borrowed as many
dollars as they could, exchanged them from baht and profited the difference. This
worked fine until the baht collapse.
The Thai government wasn’t much help. There were three different administrations
between 1993 and 1996. None of them wanted to be the one to rain on Thailand’s
parade and take measures to reign in Thailand’s bubble. The Prime Minster in the mid
1990s, Banharn Silpa-archa, was known as the "walking ATM." He emptied the
government treasury of $39 billion to prop up the economy and keep companies and
banks in business even though they had accumulated massive debts.
The disgraced Thai financier Pin Chakkaphak told the Independent, “In Thailand, the
regulations for financial executives and stock trading is very loose. In the old school
of Thai cronysim, inside information is everything....Thailand is a country of pure
traders, not builders or people who plan. The attitude was “I have a piece of land, I
want to be a rich man. If I can get a bank loan I will build a high rise on this land.
And the banks were stupid enough to give out the money...Thai corporations were the
worst abusers of borrowing funds, and kept putting up more buildings and dealing
with nor transparency.”
Indonesia
First of all it needs to be stressed that the Asian Financial Crisis hit Indonesia hardest
of all involved countries because it was not just an economic crisis. It started out as an
economic crisis but became severely aggravated because it was accompanied by a
deep political and social crisis in which the government was not willing to implement
much needed economic reforms but instead was trying to cling on to their hold of
power. As an orderly and conducive political climate is of vital importance for
investor confidence, the uncertainties and tensions in Indonesian politics made many
investors turn their back to the country. Also after Suharto's fall, political
uncertainties put off many investors (foreign and domestic) to (re)enter the Indonesian
market.

The IMF arrived in Indonesia with a bailout package totaling USD $43 billion to
restore market confidence in the Indonesian rupiah. In return it demanded some
fundamental financial reform measures: the closure of 16 privately-owned banks, the
winding down of food and energy subsidies, and it advised the Indonesian Central
Bank (Bank Indonesia) to raise interest rates. But this reform package turned out to be
a failure. The closure of the 16 banks (some controlled by Suharto's cronies) triggered
a run on other banks. Billions of rupiah were withdrawn from saving accounts,
restricting the banks' ability to lend and forcing the Central Bank to provide large
credits to the remaining banks to avert a complete banking crisis.

Moreover, the IMF did not try to curb Suharto's system of patronage that was
damaging the country's economy and undermining the IMF accord. This patronage
system was Suharto's tool to maintain power; in exchange for political and financial
support, Suharto gave powerful positions to his family, friends and enemies (thus
becoming cronies). Other developments that were negatively impacting on Indonesia
towards the end of 1997 were a serious El-Nino drought (bringing severe droughts
that caused forest fires and poor harvests) and rising speculation about Suharto's
deteriorating health (which caused political uncertainties). Gradually, Indonesia was
heading towards a political crisis.

A second agreement with the IMF was needed as the economy was continuing its
downward spiral. In January 1998 the rupiah lost half of its value within the time-span
of five days only, causing Indonesians to hoard food. This second IMF agreement
contained a detailed 50-point reform program, including provisions for a social safety
net, a gradual phasing out of certain public subsidies and the tackling of Suharto's
patronage system by ending monopolies of a number of his cronies.

However, reluctance of Suharto to implement this structural reform program

faithfully, meant that the situation did not improve. Critics of the IMF, however, point
out that the institution pushed for too much reform within too little time, thereby
worsening the Indonesian economy. The IMF indeed made errors in its initial
approach to the Indonesian crisis but it did come to realize that the key in overcoming
this crisis was to restart private capital flows to Indonesia. In order for this to happen
the patronage system had to be broken down.

A third agreement with the IMF was signed in April 1998. The Indonesian economy
and social indicators were still showing worrying signs. But this time, however, the
IMF was more flexible in its demands than on previous occasions. For instance, large
food subsidies for low-income households were granted and the budget deficit was
allowed to widen. But the IMF also called for the privatization of state-owned
companies, faster action on bank restructuring, a new bankruptcy law as well as a new
court to handle bankruptcy cases. It also insisted on the closer monitoring of its
implementation as recent experiences had shown that the Indonesian government was
not fully committed to the reform agenda.

The Crisis Hits its Climax in Indonesia

In the meantime, major social forces were at work as well. Demonstrations and
criticism directed towards the government of Suharto intensified severely after he was
re-elected and had formed a new cabinet in March 1998. This provocative new
cabinet contained a number of members from his crony-group and therefore did little
to restore confidence in the Indonesian market. After the government decided to
reduce the subsidies on fuel in early May, large-scale riots broke out in Medan,
Jakarta and Solo. Although the IMF had given Suharto time until October to reduce
these subsidies gradually, he decided to do it all at once, probably underestimating its
impact or overestimating his own position.

The tense atmosphere came to a climax when four Indonesian students were killed
during a protest at a local university in Jakarta. It is suspected that an army unit of the
special forces was behind these shootings ('Trisakti shootings'). The next couple of
days Jakarta was plagued by the worst riots ever. As had happened before, the ethnic
Chinese - disliked for their assumed wealth - were often target during these violent
riots. Chinese stores and houses were burned to the ground and Chinese women
brutally raped. When the riots calmed down, more than one thousand people had lost
their lives and thousands of buildings were destroyed. On 14 May 1998 President
Suharto stepped down from the presidency when all politicians refused to join a new
reorganized cabinet. The financial crisis had fully grown into a social and political
one.
The Philippine Experience
In the Philippines, ten years of deregulation, liberalization and democratization have
enabled our economy to withstand better than our neighbors the full impact of the
crisis. While our economy has not escaped being caught up in East Asia's turmoil, it
has been one of the least hurt by it.
Let me take a few minutes to discuss the Philippine experience - to show why my
country still is a good destination for your investments.
We Chose to Respond Positively
First of all, we Filipinos chose to respond to the crisis positively - to take to the heart
the lesson it teaches - which is that global interdependence is a fact of life, and that
global markets punish policy mistakes severely.
The crisis may have induced one of our neighbors to close its financial markets to
migratory capital. But we ourselves are keeping our own economy open to the world.
We believe the remedy lies not in returning to protectionism but in strengthening our
economy's competitiveness: in greater productivity, in a more transparent financial
system, in our maintaining political stability, and in our preserving our solidarity as a
people.
President Joseph Estrada (who was my vice-president from 1992 until 1998) is
committed to continuing the reforms instituted over these last 10 years by the Aquino
and Ramos administrators - to keeping the economy open - and to continuing to
welcome foreign trade and investment.
In dealing with the currency crisis, we in the Philippines are helped along by the
openness of national society. That public policy is made so publicly - and subjected to
sharp popular scrutiny - results in a transparency of governance which inhibits the
kind of crony capitalism that flourishes under authoritarian rule.
In Southeast Asia, even high-flying Singapore is struggling to avert recession. But our
own economy continues to grow - though at a slower pace - by a projected 1.5% for
1998.
Our exports, although slowing down - as the crisis spreads to the rich countries - still
enjoy the highest growth rates in East Asia.
Our merchandise exports of electronic components, textiles, garments, furniture and
others over January to September this year grew by 21% over those of the same
period last year. So is foreign direct investment still higher than in other Asian
countries.
In our home market, consumer spending is still up - reflecting popular confidence that
growth will continue. Joblessness has risen only marginally, and our peso has been
holding steady: it is currently trading at around 40 pesos to the U.S. dollar.
Our central bank - whose policy independence is written into the 1987 constitution -
holds reserves equivalent to almost three months' imports.
Our country enjoys steady source of foreign exchange none of our neighbors have -
remittances averaging $6-7 billion a year from our overseas workers and from
Filipino migrants here in the United States.
The I.M.F. has just allowed the central bank to draw the first tranche of $280 million
from a $1.4 billion standby loan package set up after the Philippines exited from 35
years of I.M.F. supervision last March.
The improved tax regime my administration was able to establish - through reforms in
value-added and excise taxes - also enables the Philippine government to improve its
tax yield at a time of declining customs revenues.
Keeping Our Economies Open to the World
The Estrada Administration - which took office at the end of June - plans basically to
pump-prime the economy through judicious deficit spending - focusing on public
investment on agricultural modernization and rural infrastructure.
Those priorities I believe to be sound. Not only because agriculture still employs the
bulk of all our workpeople - but also because the typical Filipino family still spends
50% of all its income on food.
Thus, keeping the food supply up - and food prices down - must be government's
highest priority. Fortunately, inflation is under control, holding steady at about 9.4% a
an average for 1998, and the prolonged droughts caused by the El Nino weather
phenomenon are now behind us.
Both agricultural modernization and public-works spending are labor-extensive
programs that will offset any loss of jobs in industry if the crisis worsens.
The new government has also announced it would carry on the privatization program
began by the Aquino administration and intensified by the Ramos administration over
1992-98.
The 100 big-ticket items that remain include a copper smelter, a phosphate and
fertilizer plant, a large chunk of the Philippine National Bank, the Luzon Railway,
and the entire postal system.
The largest and most complex of these public companies is the National Power
Corporation. Privatizing it will also enhance the long-term competitiveness of our
industries - by reducing national power rates that, in East Asia, are second only to
Japan in their costs.
Climbing the Value-Added Ladder
The Philippines should return to the growth mode beginning next year at three to four
percent in GNP - if we focus on climbing up the value-added ladder in out export
drive.
And this we can do by improving the delivery of basic social services of promary
helath care and basic education to our poorest communities -and by training or
workpeople of 46 countries surveryed by the International Institute of Management
Development in Switzerland for its 1998 World Competitive report.
And Filipino corporate managers are ranked within the top ten among those 46
countries for their competence and international experience

China

Malaysia
Malaysia is one of the countries affected by the AFC in 1997 and the GFC in 2008.
The first crisis caused the crash of the Malaysian economy, which caused the GDP to
plummet to −7.36 in 1998. The effect of the second crisis was not as bad as the first,
but country’s GDP dropped to −1.51 in 2009. The decrease in the production of the
countries resulted in less demand for energy, and prices shifted down across the
world. The decline of GDP in Malaysia during both financial crises decreased the
growth rate of CO2 emission, but the emission growth never stopped. CO2 emission
shifted from 12.04% to 0.43% during the first financial crisis in 1997. The rate
dropped from 9.84% to 2.45% during the second crisis in 2008. This study shows that
the CO2 emission in Malaysia is based on coal consumption and almost a direct
relationship is visible. The increasing proportion of coal usage as an energy source in
Malaysia resulted in the decrease in the rate of CO2 emission for petroleum and
natural gas, although the trend of carbon emission steadily increased over the years.
However, the ratio of carbon intensity from the three primary fuel sources is
decreasing. Therefore, the amount of CO2 emission for every US $1 GDP is abating
despite the effects of the two financial crises and the increase in the usage of coal as
fuel in national production.

Mongolia
Mongolia. Mongolia was adversely affected by the Asian financial crisis of 1997-98
and suffered a further loss of income as a result of the Russian crisis in
1999. Economicgrowth picked up in 1997–99 after stalling in 1996 due to a series of
natural disasters and increases in world prices of copper and cashmere.

Singapore

Despite distress in the region, Singapore weathered the effects of the financial crisis
better than its neighbours. Although the stock and property markets took a beating,
the economy performed well under the circumstances.[11] Nonetheless, the increase in
Singapore's GDP growth for 1998 was 1.5 percent, a slide from an 8 percent rise the
year before.[12] The economy rebounded in 1999 with a 5.4 percent growth in GDP.

Japana
Japan has faced recession and deflation since the collapse of the economic bubble in
the early 1990s. In addition, its financial deficits have swollen immensely, giving it
the largest financial deficits among all of the developed nations. Yet a viable to this
problem has not been offered. On the one hand, expansion of disparities due to an
increase in non-regular laborers continues, while on the other hand, the population
continues to decrease, and anxiety about the social welfare, especially for the elderly,
continues to rise. Moreover, the difficult situation that the Japanese economy finds
itself in means that as the globalization of people, goods, and capital continues apace,
Japan’s position in international society is also diminishing. In this way, the “lost
decade (ushinawareta junen)” of the 1990s (Yoshikawa, 2008; Miyoshi and Nakata,
2011) has in no time become 15 years, and with the global economic crisis triggered
by the Lehmann Brothers shock of 2008, as well as the negative trends in Japan since
the 1990s, we can now speak of a “lost 20 years (ushinawareta nijunen)” in regards to
the Japanese economy (Sakurai et al., 2011).
2Such economic changes have exerted great influences on various forms of human
mobility in Japan. Regarding the business cycle, it is well known, for example, that
the economic boom from the latter half of the 1980s to the early 1990s led to a rise in
Japan’s position in the world, and the country became a significant destination of
international migration (Castle and Miller, 1998, pp. 141-161). Conversely, the
decline of land prices caused by recession started to stimulate significant in-migration
to the central part of the Tokyo metropolitan area in the mid-1990s (Esaki, 2011).
What has been the full impact of the economic crisis on human mobility in Japan?
Was it similar to, or different from, the impact of the recession in the 1990s? These
questions remain unanswered.
3Regarding international migration to Japan, the labor force shortage during the
bubble-economy period caused a massive influx of foreigners. This influx continued
even in the recessionary period of the 1990s, leading to an increase in the foreign
population (Ishikawa, 2003). However, the negative impact of the current economic
crisis has been so serious that it has revealed a reduction in foreign residents since
2009. Such an influence was acute in the manufacturing stronghold of the Nagoya
metropolitan area and its vicinities, where manufacturing is a key industry. In
response to the economic crisis, the Japanese government employed a migration
policy to support migrant workers (OECD, 2010, p. 216). Has this policy obtained
satisfactory results?
4Since many previous studies have focused on the influence of economic crises on
human mobility in Japan (for example, Nobukuni, 1983; Hama, 1995; Ishikawa and
Fielding, 1998; Ishikawa, 2001; Yano et al., 2000; Yano et al.,2003), the topic has
attracted a certain amount of attention in the existing literature. However, the
following two drawbacks need to be mentioned. First, the economic crises
investigated in the literature were chiefly the recession observed in the late 1970s or
the 1990s, but the recent impact of the global economic crisis on human mobility has
not been adequately explored in Japan. Second, the subjects addressed in previous
research were usually internal migration by Japanese nationals as the ethnic majority.
However, the fact that Japan has witnessed a rise in its foreign population over the
past few decades suggests that we must pay attention to the human mobility both of
Japanese nationals and foreigners.