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Crisis, reform and recovery

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.

Why China survived the financial crisis
Shalendra D. Sharma

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

in The Asian financial crisis
Open Access (free)
Post-crisis Asia – economic recovery, September 11, 2001 and the challenges ahead
Shalendra D. Sharma

interest rates have been broadly unchanged since mid-1999, at levels significantly below those observed before the crisis.6 Lower interest rates helped reduce the pressure on heavily indebted corporations and contain the non-performing loans problem.7 with regard to fiscal policy, in Korea a supplementary budget adopted in August 1999 provided a much-needed additional stimulus, while targeting a consolidated central government deficit of 5 per cent of GDP for 1999. And sixth, luck has played an important role in Asia’s recovery, just as it compounded underlying problems in

in The Asian financial crisis
Open Access (free)
Crisis, reform and recovery
Shalendra D. Sharma

the central bank’s forward commitment. Moreover, commercial banks were advised to refrain from accommodating foreign speculators’ demand for foreign exchange, and the onshore and offshore foreign-exchange markets were split, with credit restrictions imposed upon non-residents. The resultant domestic credit squeeze reduced asset prices and collateral values and increased the levels of non-performing loans. This only served to put additional pressure on the already weak financial institutions, and several more finance companies collapsed. Nevertheless, the BOT

in The Asian financial crisis
Open Access (free)
Crisis, reform and recovery
Shalendra D. Sharma

both explicit and implicit pressure exerted by members of the Suharto family, their cronies and other highranking military and government officials to make loans to favored borrowers. Indeed, the practice of making loans based on political pressure became known as “memo lending,” because such loans were extended on the basis of a “memo” sent by the powerful and well-connected. Soon memo lending and other illegal practices led to high levels of non-performing loans at the state-owned banks. The case of a government-owned development bank, Bank Pembangunan Indonesia

in The Asian financial crisis
State, market, and the Party in China’s financial reform
Author:

Over more than thirty years of reform and opening, the Chinese Communist Party has pursued the gradual marketization of China’s economy alongside the preservation of a resiliently authoritarian political system, defying long-standing predictions that ‘transition’ to a market economy would catalyse deeper political transformation. In an era of deepening synergy between authoritarian politics and finance capitalism, Communists constructing capitalism offers a novel and important perspective on this central dilemma of contemporary Chinese development. This book challenges existing state–market paradigms of political economy and reveals the Eurocentric assumptions of liberal scepticism towards Chinese authoritarian resilience. It works with an alternative conceptual vocabulary for analysing the political economy of financial development as both the management and exploitation of socio-economic uncertainty. Drawing upon extensive fieldwork and over sixty interviews with policymakers, bankers, and former party and state officials, the book delves into the role of China’s state-owned banking system since 1989. It shows how political control over capital has been central to China’s experience of capitalist development, enabling both rapid economic growth whilst preserving macroeconomic and political stability. Communists constructing capitalism will be of academic interest to scholars and graduate students in the fields of Chinese studies, social studies of finance, and international and comparative political economy. Beyond academia, it will be essential reading for anyone interested in the evolution of Chinese capitalism and its implications for an increasingly central issue in contemporary global politics: the financial foundations of illiberal capitalism.

Open Access (free)
Crisis, reform and recovery
Shalendra D. Sharma

. For example, Korea, like many other Asian economies, provided implicit guarantees to the banking system. This meant that banks were often engaged in lending practices that favored financially connected (and not always unqualified) borrowers – in particular, the chaebols or big family-controlled conglomerates. These implicit guarantees led banks to lend recklessly. This, in conjunction with poor corporate governance, created a stock of non-performing loans, thereby risking bank collapses (Corsetti, Pesenti and Roubini 1998). The Economist (1997, November 15, 33) is

in The Asian financial crisis
One step forward, two steps back
Yiannos Katsourides

country deeply until after 2011, following the haircut on the Greek loan in October 2011. The 2011–13 financial crisis in Cyprus is closely related to the deep and prolonged recession in Greece. Cypriot banks were highly exposed to the Greek debt crisis, the Cypriot economy was downgraded to junk status by international rating agencies and the country lost access to international credit markets. Cyprus's ‘hypertrophic’ banking system could not absorb the increase of its non-performing loans in Greece and the ‘haircut’ of the Greek sovereign debt (Tombazos, 2014 ). The

in The European left and the financial crisis
Abstract only
Catherine Moury
,
Stella Ladi
,
Daniel Cardoso
, and
Angie Gago

cuts in public sector salaries and pensions were debated but little was done until 2019, despite pressure from the court (Psylides, 2019 ). The banking sector remained the main concern of both the government and the Troika in the post-programme period, notably measures to limit non-performing loans and finding a solution to the fragmented system of cooperative banks in Cyprus. By 2019, non-performing loans had been significantly reduced and the Cyprus Cooperative Bank sold (European Commission, 2019 ). Some of the reforms initiated by the MoU, like the

in Capitalising on constraint
Open Access (free)
Issues, debates and an overview of the crisis
Shalendra D. Sharma

totaling 17 trillion yen in April 1998, a further 17 trillion yen in 1999, including 6 trillion yen in tax cuts (Horiuchi 2000, 30–1). So far, these measures have failed to resolve the roots of Japan’s economic malaise: the US$800 billion to US$1 trillion in non-performing loans.45 As the next section illustrates, Japan’s long recession has had a significant impact on the crisis-hit countries in the region. During the late 1980s and 1990s, with the very rapid and sustained appreciation of the yen, Japanese manufacturers recognized that they needed to transfer a large

in The Asian financial crisis