The Asian ﬁnancial crisis 4 Korea: crisis, reform and recovery We don’t know whether we would go bankrupt tomorrow or the day after tomorrow. I can’t sleep since I was briefed. I am totally ﬂabbergasted . . . This is the bottom. It’s a matter of one month, no, even one day. I just can’t understand how the situation came to this (President-elect Kim Dae-Jung, December 23, 1997).1 In the 1950s, Korea was among the poorest countries in the world, with a per capita income of under US$100. In per capita terms, this placed the country below Haiti, Ethiopia, Peru
The Asian financial crisis of 1997-98 shook the foundations of the global economy and what began as a localised currency crisis soon engulfed the entire Asian region. This book explores what went wrong and how did the Asian economies long considered 'miracles' respond, among other things. The combined effects of growing unemployment, rising inflation, and the absence of a meaningful social safety-net system, pushed large numbers of displaced workers and their families into poverty. Resolving Thailand's notorious non-performing loans problem will depend on the fortunes of the country's real economy, and on the success of Thai Asset Management Corporation (TAMC). Under International Monetary Fund's (IMF) oversight, the Indonesian government has also taken steps to deal with the massive debt problem. After Indonesian Debt Restructuring Agency's (INDRA) failure, the Indonesian government passed the Company Bankruptcy and Debt Restructuring and/or Rehabilitation Act to facilitate reorganization of illiquid, but financially viable companies. Economic reforms in Korea were started by Kim Dae-Jung. the partial convertibility of the Renminbi (RMB), not being heavy burdened with short-term debt liabilities, and rapid foreign trade explains China's remarkable immunity to the "Asian flu". The proposed sovereign debt restructuring mechanism (SDRM) (modeled on corporate bankruptcy law) would allow countries to seek legal protection from creditors that stand in the way of restructuring, and in exchange debtors would have to negotiate with their creditors in good faith.
September and October, the currencies of Taiwan and Singapore came under intense pressure. While both countries managed to avoid Table 1.1 Rate of currency depreciation 1997–98 (local currency per US dollar) 2 July 1997 End Sept. 1998 Rate of dep. (%) July 1997–Sept. 1998 26.38 2,341.92 24.40 2.57 885.74 43.80 10,638.30 38.99 3.80 1,369.86 66.10 354.30 59.80 47.80 54.70 Philippine peso Indonesian rupiah Thai baht Malaysian ringgit Korean won Source: OECD (1999, 249). 1 The Asian ﬁnancial crisis full-blown ﬁnancial crises, both were, nevertheless, forced to
trust at risk’. 2 Fuld also claimed that they were in the final stages of raising capital with the sale of a majority stake in their investment management division, whilst retaining the Lehman and the Neuberger Berman brands. A potential deal with a Korean sovereign wealth fund, the Korean Investment Corporation, which would have provided Lehman Brothers with $5bn, had fallen through in August 2008. Negotiations had then taken place with the Korean Development Fund (KDF). It was thought that the fact that negotiations had taken place with KIC would not affect the
The Asian ﬁnancial crisis 7 Conclusion: post-crisis Asia – economic recovery, September 11, 2001 and the challenges ahead To the extent that Asia is recovering, no one can claim the credit. The amazing thing to me – if you leave Indonesia out – is how similar the performances are, regardless of the policies. Korea took the IMF’s advice and it’s bouncing back. Thailand took the IMF’s advice and it’s starting to come back. Malaysia deﬁed the IMF and did everything the IMF told it not to – it’s coming back fast. Everybody’s contemplating success for their
The well-being of Europe’s citizens depends less on individual consumption and more on their social consumption of essential goods and services – from water and retail banking to schools and care homes – in what we call the foundational economy. Individual consumption depends on market income, while foundational consumption depends on social infrastructure and delivery systems of networks and branches, which are neither created nor renewed automatically, even as incomes increase. This historically created foundational economy has been wrecked in the last generation by privatisation, outsourcing, franchising and the widespread penetration of opportunistic and predatory business models. The distinctive, primary role of public policy should therefore be to secure the supply of basic services for all citizens (not a quantum of economic growth and jobs). Reconstructing the foundational has to start with a vision of citizenship that identifies foundational entitlements as the conditions for dignified human development, and likewise has to depend on treating the business enterprises central to the foundational economy as juridical persons with claims to entitlements but also with responsibilities and duties. If the aim is citizen well-being and flourishing for the many not the few, then European politics at regional, national and EU level needs to be refocused on foundational consumption and securing universal minimum access and quality. If/when government is unresponsive, the impetus for change has to come from engaging citizens locally and regionally in actions which break with the top down politics of ‘vote for us and we will do this for you’.
Republic of Korea (South Korea), Thailand, Malaysia and Indonesia – namely, fragile bank-dominated ﬁnancial systems, poor prudential surveillance and weak central bank regulation and supervision of commercial banks, a large build-up of non-performing loans due in part to excessive lending to inefﬁcient, over-leveraged state enterprises, and a largely state-owned ﬁnancial sector that may be almost insolvent – led many observers to conclude that the contagion’s virulent spread to China was imminent. However, the Middle Kingdom beat the odds. Although the Asian ﬂu affected
borrow more cautiously. However, while limited lending may limit moral hazard, it might also fail to calm investor panic. For example, the more than US$21 billion that the IMF lent to South Korea was 2,000 per cent of quota – and even this failed to stem panic. It is clear that if IMF lending is to be limited in this way, then other mechanisms will have to be in place to resolve the crisis problem. The International Financial Institution Advisory Commission (IFIAC), also known as the Meltzer Commission (after its chair, Professor Allan Meltzer) has proposed new rules
Mortgage, a subprime lending unit, with the loss of 1,200 jobs, as well as the Korea Central Mortgage business. None of these were mentioned in the introduction to the company's report. Instead, Dick Fuld referred to the disruption in the mortgage market, the sharp decline in liquidity and the slowing of corporate and institutional activity. He added, ‘We have successfully navigated difficult markets before. We have benefited from our senior level focus on risk management and, more importantly, from a culture of risk management at every level of the Firm’. 2
we spoke to from countries across the world including India, Chile, Finland, South Korea, South Africa, Guyana, Brazil and Malaysia. In the next chapter we explore the mechanisms by which the lack of diversity and inclusivity in US economics is exported to other countries across the world because of the position of the US, at the top of a global hierarchy of economics