Eleven years after the Asian crisis, what policy lessons? - publié le 17/05/2009

Résumé du document

During the thirty years that preceded the financial crisis in Asia, Korea, Indonesia, Malaysia and Thailand, there were some remarkable economic performances in terms of fast growth, weak inflation, macroeconomic stability and solid public finances, high savings, opened economy and rich exports. During that time, the economic crisis wasn't easy to forecast. It is now naturally much easier to identify the causes whereas the policy lessons are still discussed eleven years after. These countries were victims of their own success. From the launch of their robust economic performances till the beginning of the 1990s, Asian countries refused to see the problems when they first came. It was impossible to imagine a crisis like the one that had shaken Latin America in the 1980s, because they were neither confronted with heavy budget deficits, nor with the burden of a national debt.

Extraits

[...] The conjugation of a partial liberalization and structural rigidity made that the capital was invested without that the risks being taken into account. It is important that the liberalization of the capital movements is made in the good order, so that the financial system is capable of organizing the capital towards productive investments. It would be much more effective to remedy radically to the fundamental problems of the financial sector and of the companies, and to create an optimal environment to guaranty the productive use of the capital. [...]

[...] During this time, both the Won and the Baht got notably appreciated after their initial collapse. Weakness of banking sectors and Asian companies indeed did limit the possibilities of increasing the interest rates. But all of those who couldn't stop reminding unfavorable effects of increasing interest rates on internal borrowers neglected the consequences of currency depreciation on the holders of foreign debt. A collapse of the currency weighs down in an unbearable way the load of foreign debt for the banking sector and the companies. [...]

[...] Budgetary policy At first, the budgetary situation of the Asian countries was solid. The initial objectives aimed for a light surplus which was supposed to help facilitate the outside adjustment and leave a margin for the financing of the expensive restructuring of the financial sector. But, seen the degradation of the economic situation, these objectives were adjusted to allow the functioning of the automatic stabilizers and finance the supplementary welfare expenditure. In fact, the budgetary policy of these countries was so careful that the IMF sometimes, paradoxically, had to convince them to increase their expenses. [...]

[...] On the third hand, in countries affected by the crisis, exports were weak in the middle of the 90s for a certain number of reasons, among which the appreciation of the USDollar against the yen, the devaluation of the Yuan in China in 1994 and the loss of a few markets when the North American Free- Trade Agreement (NAFTA) was launched. The massive income of capital and the decline of the exports resulted into an increasing of the deficits of the current transactions. Furthermore a substantial part of the incoming capital was as current liabilities, exposing countries to outside shocks. It is clear, to this point, that these countries were close to disaster - the only question was what would provoke the collapse. [...]

[...] But the main source of the problems in all these countries was of structural nature that is to say the weakness of the financial sector and the companies, the deficiencies of the governance and the lack of transparency. And, when came the development of the crisis, markets focused on these problems. It would have been very difficult to get trust back from the investors if countries' programs had not included initiatives to remedy to it, even if these problems could not be resolved from day to day. [...]