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Asian financial crisis

Internationella valutafondens roll i krishantering: fallet Asien

För oss från Norden var det dock uppenbart redan i ett relativt tidigt skede av krisen i Asien att det fanns flera likheter med den bank- och finanskris vi upplevt i Sverige, liksom i Finland och Norge.
Låt oss här nämna tre punkter där vi anser att likheterna är de mest uppenbara.

The Asian financial crisis
Local banks and non-financial companies ended up borrowing dollars and yen short-term
to fund real estate bubbles and acquisitions.
Matthew C Klein, FT Alphaville 8 November 2017

(Something similar had happened in the 1970s, except back then the inflows went to Latin America.)

This wasteful activity boosted reported output growth and encouraged additional inflows — until it didn’t.
The crisis hit Thailand first, and then spread to much of East Asia.
Deep recessions, often exacerbated by dubious advice from the IMF, led to political upheaval and humiliating interventions from self-righteous foreigners.

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Currencies in Malaysia, Thailand, Indonesia and South Korea plummeted; companies defaulted on tranche after tranche of foreign debt;
millions lost their jobs; thousands chose suicide; and governments fell.
FT 3 July 2017

Self-reliance compelled south-east Asian nations to build war chests of foreign currency reserves to repel speculative attacks. It also prompted them to live closer to their means, curbing a foreign borrowing addiction that had left them vulnerable when the crisis drove down the value of their currency relative to their dollar debts.

These storm walls proved their worth during the 2008/09 financial crisis.

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According to BIS data, there are some $2.6tn of outstanding international debt securities from emerging market borrowers,
Corporate leverage in regions such as Asia is considerably higher today, relative to gross domestic product, than it was before the 1998 Asian financial crisis
Gillian Tett, FT December 18, 2014

International banks have extended some $3.1tn hard currency loans to emerging market borrowers, with a particularly stark increase in places such as China.

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Fed calls time on $5.7 trillion of emerging market dollar debt
The stronger the US boom, the worse it will be for those countries on the wrong side of the dollar
Ambrose Evans-Pritchard 17 Dec 2014

The Fed has already slashed its bond purchases to zero, withdrawing $85bn of net stimulus each month. It is clearly itching to raise rates for the first time in seven years. This is the reason why the dollar index (DXY) has jumped 12pc since May,
smashing through its 30-year downtrend line, a "seismic change" in the words of HSBC.

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Carry trade
How the Rising Dollar Could Trigger the Next Global Financial Crisis
John Mauldin's Outside the Box on 12-11-2014

We have struggled to quantify the actual size of the nebulous USD-backed carry trade that could now come unwound at any moment.
Reasonable estimates range from $2 trillion to $5 trillion.

In a recent presentation at the Brookings Institution, BIS Head of Research and Princeton University Professor Hyun Song Shin
shared his research revealing that dollar-denominated credit to non-bank offshore borrowers is now more than $9 TRILLION and at serious risk in the event of continued policy divergence.

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Carry trade


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Debt ratios in developing Asia have surpassed extremes seen just before the East Asian financial crisis blew up in the late 1990s
companies have borrowed unprecedented sums in dollars, leaving the region highly vulnerable to US monetary tightening.
Ambrose Evans-Pritchard, 29 September 2014

Morgan Stanley said foreign debt in emerging Asia has soared from $300bn to $2.5 trillion over the last decade, creating the risk of a currency shock as the dollar surges to a four-year high and threatens to smash through key technical resistance.

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Surging US dollar threatens emerging markets’ carry trades
FT September 29, 2014

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The last big rupiah plunge was in 1997-98, when Indonesia was the epicenter of an Asian financial crisis.
In retrospect, that crisis was a sort of dress rehearsal for the much bigger crisis that engulfed the advanced world a decade later.
a reminder of how little we learned from that crisis 16 years ago.
We didn’t reform the financial industry — on the contrary, deregulation went full speed ahead.
Nor did we learn the right lessons about how to respond when crisis strikes.
Paul Krugman, New York Times, 29 August 2013

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How Indian Carry Trade works
Chris Martenson, Peak Prosperity, September 2013

The lessons of the Asian financial crisis could fill several books, and indeed they have.
For a scholarly example, see Morris Goldstein (1998), The Asian Financial Crisis: Causes, Cures, and Systemic Implications, Institute for International Economics.
For a general audience example, see Paul Blustein (2001), The Chastening, Public Affairs.
Paul McCulley and Ramin Toloui November 2007

If Europe wants to know how Greece's crisis ends
Asia provides some vital clues, ones being actively ignored at the moment.
William Pesek, Bloomberg 23 February 2012

Yes, it's a less-than-perfect comparison. Fourteen-plus years after Thailand's currency devaluation touched off a region-wide meltdown, Asia and Europe are still a world apart. Asia wasn't shackled with a single currency or one central bank. Yet it's the last place to experience anything similar to what's afoot in the euro zone.

Asia's 1997-1998 implosion toppled governments, fueled riots, devastated living standards and brutalized markets.

Europe's own pain is just beginning. What can it learn from Asia's experience?

Politicians can't stop an unavoidable default.
Europe's efforts to save Greece are as commendable as they are futile. Athens will default no matter how many bailouts are tossed its way.

Growth matters.
The IMF demanded that Asia hike interest rates and slash spending to receive aid.
Those steps exacerbated and prolonged the pain.

Amid all the worries about bubbles in the world, what about the bubble in austerity? It means Europe's woes will drag on and on -- and on.

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Wrong lessons from Asia’s crisis
Chris Giles, FT July 2 2007

Few in 1997 were surprised that Thailand’s economy was suffering. With extremely large current account deficits of around 8 per cent of gross domestic product, a vulnerability to speculative attack had been noticed by the IMF, which had recommended a more flexible exchange rate.

Thailand refused. Instead, speculators battled with the central bank through the spring of 1997 over the value of the baht. When the authorities ran out of foreign exchange reserves, they admitted defeat and allowed the currency to plunge on July 2, inflicting great pain on banks and finance companies, which had borrowed in dollars in the belief that the currency would remain pegged.

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Thailands riksbankschef avgår efter valutakollaps, enligt BBC.

Det gjorde inte Feldt (han är fortfarande ordförande i Riksbanksfullmäktige, Erik Åsbrink eller Bengt Dennis (han gick i pension avtackad med blommor och till ett nytt jobb som rådgivare åt S-E-Banken, där han jobbar ihop med Klas Eklund, tidigare rådgivare åt Palme, Feldt och Åsbrink.

A world divided, Martin Wolf, FT, July 14, 1999
The biggest challenge for human development is to help failing states, particularly in Africa

Steve Hanke in Forbes:
But Jubilee 2000, a London-based organization supported by the usual luminous do-gooders - politicians, churchmen, academics, writers, sports figures and entertainers - wants much more. It wants governments and multinational organizations to write off all loans they have made to the poorest countries.

Hedge funds, leverage, and the lessons of Long-Term Capital Management
Federal Reserve Board Testimony of Patrick M. Parkinson Associate Director, Division of Research and Statistics
Before the Committee on Banking and Financial Services, U.S. House of Representatives May 6, 1999

Did they save the world?

Steve Hanke thinks not


The Dangerous Preference for Fixed Exchange Rates,
by John H. Makin March 1999

Jeffrey Sachs on Brazil, january 1999

On the Need for an International Lender of Last Resort, Stanley Fischer january 1999

IMF Asian Crisis

Crisis in Emerging Market Economies: the Road to Recovery
Address by Michel Camdessus Managing Director of the International Monetary Fund
September 15, 1998

Economic Crises and the Financial Sector, Stanley Fischer, First Deputy Managing Director, International Monetary Fund, September 10, 1998

Institute for International Economics

Paul Krugman on Japan, May 1998: "Japans trap"

John H. Makin, American Enterprise Institute:
Asia's Crisis Is Not a Currency Crisis,

John H. Makin: Interference with Free Markets Causes Global Crisis
October 1998, John H. Makin is resident scholar at the American Enterprise Institute

South China Morning Post (HK) om Asienkrisen

Washington Post: Asian crisis

Joseph Stiglitz, Senior Vice President and Chief Economist The World Bank
- Road to Recovery Restoring growth in the region could be a long and difficult process

Rolf Englund i VI-direkt 98-03: "Asiens skuldkris hot mot världsekonomin"

President Clinton 1998-10-06 - (stupid remarks)

Gerald Corrigan, Managing Director, Goldman, Sachs & Co. (pdf file)

Varning för asiatisk skleros! - Tomas Larsson

Asiens kris är inte kapitalismens - Tomas Larsson

Singapore - en ny välfärdsmodell? av Tomas Larsson

DN-ledare 98-06-21, Den gemensamma nämnaren för de sydostasiatiska ekonomierna är överbelåning. Generös lånefinansiering är en faktor bakom expansionen. I Indonesien och Sydkorea har statliga respektive statligt gynnade företag kunnat arbeta med extremt hög skuldsättning och extremt låg lönsamhet. Men detta innebär inte att krisen är en följd av "nyliberalism" som Göran Persson påstått. Sydostasiens ekonomier har på kort tid lyft huvuddelen av befolkningen ur fattigdom genom företagande, arbete, högt sparande och investerande, och frihandel.

Utdrag ur ledare i Euromoney June 1998

To break the vicious circle of bankruptcy and credit crunch, Japan needs a national bad bank - a US-style Resolution Trust - into which impaired assets are sold at realistic market prices. The banks that cannot absorb the consequent write-offs have to be allowed to fail, though the depositors should be compensated. The banks, much reduced in size, must then start lending again.

The problem is this. Admitting there is a crisis means admitting someone is to blame and then apportioning that blame. In the US, when the scale of the Savings & Loans crisis became clear, the failure of the regulators was acknowledged and changes were made. In Japan those to blame - the central bank, the ministry of finance and others - are unwilling to shoulder responsibility in case they lose power or influence to a competing institution. And government leaders apparently cannot stomach the wholesale firing of these failed bureaucrats.

Under these circumstances, with government leaders unwilling to act decisively and with real social pain increasing, you would expect a popular backlash. The democratic process would be the catalyst for change, either electing a new government on a reform ticket or forcing reform upon the incumbents. In Japan this won't happen either. First, Japan's democracy is too weak to perform this function. Second, and more important, people generally do not march in the streets demanding to be made unemployed. That is what a demand to restructure Japan's banking system (and so the rest of its economy) would effectively be, in the short term at least.

CNN Special about Yen Crisis

Indonesian deal with the banks

Euromoney maj 98 Indonesien

Asia's Continuing Depression By Robert J. Samuelson Wednesday, May 13, 1998 Washington Post

U.S. Assistant Secretary for International Affairs Timothy F. Geithner at the Asian Development Bank

Is the Asian Crisis Over? Address by Michel Camdessus Managing Director of the International Monetary Fund at the National Press Club Washington, D.C. - April 2, 1998

CNN om Asienkrisen

Economist om Asienkrisen

Financial Times om Asienkrisen

South China Morning Post (Hong Kong)

The Leonard N. Stern School of Business at New York University om Asien-krisen

Asian Financial Situation (U.S. Trade Administration)

DN-ledare 98-02- 09: Vi överlever Sydöstasiens kris - IMF har en viktig uppgift i att stödja det internationella banksystemet

Helmut Reisen: Green light for danger TUESDAY FEBRUARY 3 1998

Credit rating agencies need radical reform if they are to do their job properly

Washinton Post: Understanding the Asian Economic Crisis

Economist om krisen i Asien


Asia and the IMF, Hong Kong, China, September 19, 1997


Press Conference by Mr. Michel Camdessus, Managing Director of the Intenational Monetary Fund - January 16, 1998


World Bank Announces Visit by its President, James D. Wolfensohn, to East Asia


World Bank President James D. Wolfensohn came under sharp criticism today - Feb. 4 - by community leaders and democracy advocates who said the bank's past lending here had ignored rampant government corruption and the lack of democratic development. Wolfensohn replied by acknowledging that "we didn't get everything right in the past."


Debt Crisis/Skuldkrisen