FROM CRISIS 10 RECOVERY East Asia Rising Again? FROM CRISIS 10 RECOVERY East Asia Rising Again? Editors Tzong-shian Yu Chinese Institute of Economics and Business Dianqing Xu Huron College, University of Western Ontario Y f e World Scientific ô Singapore • New Jersey London * Hong Kong Published by World Scientific Publishing Co Pte Ltd P O Box 128, Farrer Road, Singapore 912805 USA office: Suite IB, 1060 Main Street, River Edge, NJ 07661 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library FROM CRISIS TO RECOVERY: EAST ASIA RISING AGAIN? Copyright © 2001 by World Scientific Publishing Co Pte Ltd All rights reserved This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the Publisher For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA In this case permission to photocopy is not required from the publisher ISBN 981-02-4434-7 This book is printed on acid-free paper Printed in Singapore by Uto-Print PREFACE The financial crisis first broke in Thailand on July 2, 1997, and swept the region like a tornado, engulfing Malaysia, Indonesia, Philippines and Singapore, and encroaching upon Hong Kong, Taiwan, Korea, Japan and China No country in East Asia managed to completely evade its impact One year later, the far-reaching effects of the economic storm have still not died down in East Asia, and had spread even to Russia and Latin America All the countries that succumbed to the crisis found themselves facing a sharp depreciation in their currencies and collapse of market stock; these effects have in turn resulted in a decline in exports, a slowdown in economic growth, and a rise in unemployment It may be an oddly ironic that these newly-industrializing Asian countries had all maintained a high growth rate for over two decades before 1997, since, within the period of just a few months, prosperity was transformed into depression, and abundance into scarcity Many well-known and wellregarded large enterprises have gone bankrupt, while the governments concerned still have no effective means of mitigating the impact of the financial crisis However, it may also be interesting to note that after two years of recession in East Asia, almost all the countries in this region are rising again In the wake of this sudden onslaught on the economies of East Asia, many new questions have come to light, and are waiting for the right answers, such as: How is it that the Asian countries could have become so weak so as to totally succumb to the financial crisis? What are the real causes of the financial crisis? What policy measures have the affected countries undertaken in order to combat the financial crisis and how effective are they? As for the argument of "hands off policy" vs "government intervention", which approach is more appropriate for curbing the expansion of the financial crisis? What are the policy implications for solving the V vi From Crisis to Recovery problem of financial crisis? Why is East Asia rising again after two-year recession? And so on Obviously, the financial crisis in East Asia has not only troubled the government and businessmen but also caused great concern for economists in this region Mr Harold H C Han, president of the Himalaya Foundation, realized the serious impact of the financial crisis to East Asian countries and asked us to submit a research project on this crisis to his Foundation At the Meeting of Leading Grant-Making Foundations in Asia and Oceania held on November 20-21, 1998 in Tokyo, he presented our project on the East Asian Financial Crisis to the Meeting and gained the support of all the participants We then organized a research team, composed of twelve leading economists from the ten East Asian countries, including Thailand, Malaysia, Indonesia, the Philippines, Singapore, Hong Kong, Taiwan, Korea, Mainland China and Japan We also invited one expert from the United States to be responsible for making an aggregate analysis of the interdependence of this region in the context of a financial crisis The first meeting of the research team was held in Taipei in April 9, 1999 All participants discussed the outline very carefully The team members had a second meeting in Taipei in January 22 and 23, 2000 About one year later, we finished the project There are already many research papers and books regarding the Asian financial crisis However, there are several characteristics that make this book unique, and attractive to many readers First of all, labor division among the economists is the most important characteristic of the book, since the author of each chapter is an expert on their own country's economy They are very active not only in economic research but many of them were also deeply involved in the policy-making process during the financial crisis They provided a great deal of first-hand knowledge and the latest information on the financial crisis and economic recovery in their country Secondly, because all the authors in the book worked on the same framework instead of writing their paper totally independently, it is much easier for our readers to understand what has happened in Asian countries through comparative studies Even though each paper focuses on one country's Preface vii case, there is an internal connection among the chapters All articles in the book discuss the external affects and regional environment during the financial crisis Thirdly, the articles in the book not only pay attention to policy analysis but also emphasize economic theory Many articles in the book challenge the traditional economic theory in international finance The potential readers of the book will be professors and graduate students in economics, and economists who work in financial institutions such as the World Bank, IMF, ADB and commercial banks and other financial and international business arenas In addition, this book is also very important to all economic policy-making officials in either Asian countries or the rest of the world This book is a very rich information resource for all readers who are interested in Asian economies The completion of the research project should be mainly attributed to Mr Han who initiated the project and fully supported the proceeding of the project We are also deeply indebted to the foundations, banks and groups, including Himalaya Foundation, Pou Chen International Group, Lin Rong San Foundation of Culture and Social Welfare, Holmsgreen Foundation, Fubon Bank, Toyota Foundation, Chiang Ching-Kuo Foundation for International Scholarly Exchange, Vedan Group for their generous support Without their support, it would be impossible to successfully focus on carrying out our project Tzong-shian Yu Director Chinese Institute of Economics and Business Dianqing Xu Professor of Economics Huron College University of Western Ontario CONTENTS Preface Tzong-shian Yu and Dianqing Xu v An Overview of the Financial Crisis in East Asia Tzong-shian Yu Japan Japan's Bubble Economy and Asia Lint Hua Sing 29 China Financial Crisis and Chinese Economy Dianqing Xu 47 Korea Korea Financial Crisis: The Crisis of a Development Model? Jaymin Lee Singapore Coping with the Asian Financial Crisis: The Singapore Experience Kee-jin Ngiam 101 141 Hong Kong Financial Crisis in the Case of Hong Kong: Last In, Last Out? Chyau Tuan and Linda F.Y Ng 173 Taiwan Financial Crisis in East Asia Teh-Ming Huo 231 Lessons and Policy Implications 501 1998, that the IMF made a monumental shift towards recommending fiscal stimulus, along with the creation of a social safety net and the resolution of the external debt burden As a result, the severe cuts in government expenditure magnified the domestic economic recession Responses to the policies prescribed by the IMF for Thailand, indicate that the recent Asian crisis may have a close linkage to the IMF-led efforts to encourage capital account liberalization, since various policy measures were issued — under the IMF's technical assistance — as a means of addressing problems of stability, particularly stability of exchange rates and price levels, whilst the problem of economic growth was given less priority Consequently, capital liberalization has become a catalyst for turbulence in the international financial markets, especially in foreign exchange transactions, and due to the unregulated financial markets that existed in Thailand, unnecessary volatility was introduced into the foreign exchange markets and the movement of capital In 1998, the economic growth rate in Thailand dropped by percent Korea appears to have had a rather different response to that of Indonesia and Thailand The Korean government — with the consent of the IMF — turned to deflationary policies following the stabilization of its foreign exchange rate from the middle of 1998, and this brought about its effective recovery in 1999 as fiscal stimulus was beginning to work and consumption expenditure was returning to some sort of normality A further disparity lies in the fact that the Korean government had modified the IMF's prescriptive recipe in response to the experiences of Indonesia and Thailand In practice, the IMF policy recommendations may provide a good means of maintaining stability in foreign exchange rates, but at the same time, may well be harmful for economic recovery; and they may be good for ensuring the establishment of sound financial systems in the long term, but inappropriate for stimulating economic activity in the short term For instance, the IMF programs also consisted of the establishment of international accounting and auditing standards, providing prudential rules, including those See: Chawin Leenabanchong's paper in this volume See: Jaymin Lee's paper in this volume 502 T.-S Yu & D Xu on insolvency and financial disclosure, and the effective supervision and monitoring of financial institutions All of these measures are essentially long term in nature and take considerable time to implement THE ROAD TO RECOVERY Following their period of coming to terms with the financial crisis, a period which lasted around two years, the East Asian countries noticeably started to recover, and in 1999, all the countries that have experienced economic crisis, with the exception of Indonesia, had re-established positive economic growth, rising stock prices and a slow but steady improvement in foreign exchange rates Clearly, it would be fascinating to understand how the East Asian economies started to recover so rapidly, therefore, in order to establish the reasons, we have employed a recursive dynamic CGE analysis which provides us with some reasonable answers to the puzzle After the financial crisis, the domestic market in most Asian countries is quite weak There is the need to maintain the aggregate demand The very weak market demand is the major obstacle, which limits the speed of the economic recovery in Asia As we already know, Japan, as a giant country within the region, has played a key role not only in its involvement in the outbreak of the crisis, but also in initiating the region's economic recovery The pursuit of economic recovery depends largely upon the expansion of aggregate demand, both in domestic demand and in exports According to our findings, the recovery of Japan's domestic demand, especially in its private consumption and investment, would have had a strong positive effect on the Asian economies in general, since only Japan could provide the necessary scale of export market for the other Asian countries The stability of the Chinese currency also provided a major contribution, and Mainland China had clearly tried in every possible way to maintain the stability of its currency prior to the general recovery of the East Asian economy If Mainland China had devalued its currency, this would have produced a strong See: E.A Tan's paper in this volume Lessons and Policy Implications 503 substitution effect, resulting in considerable reduction in the export markets of the other Asian economies This would also have created the strong possibility of triggering a further round of competitive devaluation and financial turmoil in the Asian countries Beyond these findings another important, but largely ignored factor, which has also made a substantial contribution to the recovery of the East Asian economy, is capital movement During the middle of 1999, stock prices in the United States had soared to an extremely high level, which obviously provided the warning signal for a "bubble phenomenon", such that many international funds were already starting to turn back to the East Asia region For the Asian Financial markets, this was clearly helpful in building confidence, increasing their investment, and resuming their activities within the region LESSONS FROM THE FINANCIAL CRISIS There is an old Chinese saying that goes: "the lessons from past experiences may serve as a master for the future." The East Asian financial crisis is now over, and each of the East Asian countries has gained a different perspective from their experience in combating the crisis If we can learn something from these shared experiences, it may be helpful for us to cope with any similar challenge in the future The Current Account Deficit Problem To many newly emerging economies, their long experiences of current account deficits not provide a sound indicator of their financial condition One might argue that the United States has managed to operate under substantial current account deficits for a significant period of time, and yet its financial conditions remain stable However, the United States is the richest and the strongest country in the world; its currency has been universally accepted, its multinational enterprises have dominated many industries, and their wealth is allocated in many countries Even though its current account is in deficit, its credit is still the most reliable in the world 504 T.-S Yu & D Xu The types of capital inflows may well be more crucial than their size Total capital inflows include hot money, such as portfolio equity investment, and cold money, such as foreign direct investment Reliance on short-term capital inflows to finance the current account deficit is untenable in the longer term due to the volatile nature of these funds Capital Account Liberalization Currently, the formation of various funds has become universal in nature By means of channeling their way into the liberalization of the capital account, many large funds have tried to dominate the financial markets of developing countries If the country has no strong defense against such infiltration, its financial market could quickly form a bubble; the experience of Thailand is a particularly good example In July 1997, prior to the financial crisis, international accounting and auditing standards in Thailand had not been effectively or extensively implemented, and there was no reliable financial information for use in assessing loans and equities and the overall financial condition of banks Usually in developing countries, the stock market and real estate market are relatively small and there is a distinct absence of well-designed regulations for the capital markets, along with a shortage of managers experienced in capital market administration If the doors were open to foreign capital in the two markets, this would encourage international speculators to take advantage of such an opportunity to dominate the financial markets Following the bitter experiences of the financial crisis, many banks and economists in the region now insist that governments should follow an appropriate sequence for opening up their capital accounts, that is, the opening up of the current account should be first, followed by the capital account, and when liberalizing the capital account, this should be undertaken in a gradual step-by-step way Strong Economic Fundamentals Strong economic fundamentals may be the first line of defense for any country battling against financial attack Even though the country may be Lessons and Policy Implications 505 unable to completely avoid such attack, it can instead, significantly reduce the potential damage Singapore provides a good example in this case With such strong economic fundamentals, Singapore deterred currency attacks and took bold, timely and appropriate measures to counter the large negative shocks triggered by the crisis Singapore used its foreign reserves to intervene directly in the foreign exchange markets, in a bid to help shore up both the Baht and the Rupiah in the midst of the crisis The flexibility of both the exchange and wage rates in Singapore had enabled it to weaken the effects of the Asian financial crisis By adapting a flexible exchange rate system, it was able to avoid overvaluation (or undervaluation) of the Singapore dollar An overvalued exchange rate could have invited speculative attacks, whilst the flexible exchange rate system was capable of reacting swiftly to the crisis The adjustment in wage rates is however, another matter, this would only be applicable in a small-scale country; it is doubtful whether it would be tenable in a larger country In short, sound macroeconomic management and a robust banking system may be considered the two main pillars of macroeconomic stability Hence, the deregulation of the financial sector should be accompanied by improvements in bank supervision and in the implementation of prudential rules and regulations Over-Investment in Real Estate Most of the East Asian countries prefer to invest heavily in real estate in order to make substantial capital gains Around the 1990s, both Japan and Taiwan had suffered seriously from the sluggishness of the real estate markets, due mainly to enterprises having built a substantial number of properties with high prices, most of which had been beyond the purchasing power of the middle-income class Inevitably, these enterprises were unable to recoup sufficient capital to repay their loans to the banks, which in turn led them in to financial crisis During the past decade, mainland China, Hong Kong, Thailand, Malaysia and Indonesia have each had similar problems; they have built many high priced residential properties, hotels and department stores, even though there was no effective demand for them This has not 506 T.-S Yu & D Xu only caused bankruptcy amongst many constructors, but has also resulted in financial difficulties within many of the banks Due to the widespread policy of low interest rates, many Japanese enterprises also undertook speculative real estate activities in many East Asian countries, such that these Japanese enterprises suffered losses on their investment in real estate, not only in Japan itself, but also in many other East Asian countries It is therefore regarded as reasonable to say that the underlying cause of their losses is attributable to their over-investment in real estate Government Intervention vs Laissez-Faire In July 1997, as the financial crisis broke out, the immediate effect within the East Asian countries was the collapse of their financial markets When faced with such a catastrophic event, all the governments within the region adopted some form of policy measures aimed at combating the crisis Even Hong Kong, the so-called model of the free market, also adopted measures to fight against the activities of international speculators, and then took some of the blame from the monetary school The result is that there is now some controversy between the appropriateness of government intervention as opposed to a more laissez-faire approach Theoretically, a free market means that no individuals can influence price determination; if the market is strongly dominated by a few speculators, the market is no longer free Under such a condition, there is a requirement for some form of policy measures capable of eliminating monopolistic or oligopolistic power, whilst facilitating effective resumption of the market No economist in the world believes that the current financial international market is a perfect competitive market Market failure in the international financial market is very clear If the size of the international financial group increases, the ability to avoid the risk is strong Because the total number of players in the international financial market has been reduced step by step, many assets have been focused into few large groups The merger of the large financial institutions leaves them with the power to influence the price in the international financial market Therefore, performance of the financial group follows the increasing return to scale and the international Lessons and Policy Implications 507 financial market has no convexity Definitely there is no competitive equilibrium in the international financial market Without rules of the game in the international market is one of the major reasons for the financial crisis in the world However, until today no one knows who has the authorization to reform the rules of the game for the international financial market Also, there is not one institution that will take the responsibility to change the rules Therefore, there is not any reason to make such a judgement: the financial crisis in the international financial market is only a short-term problem Of course, the responsibility for protecting the market from speculator control lies with the government The Moral Hazard Problem The so-called moral hazard problem, as a cause of the financial crisis in East Asia, has been discussed in many relevant papers and books Although there is not, as yet, any general agreement, it really is an economic issue that has to be dealt with The moral hazard problem indicates that private banks were implicitly encouraged to finance favored companies on the assumption that the government would guarantee their favors If the favored company was to incur losses through financial crisis, due to the following causes: (i) rapid expansion of scale through its borrowings; (ii) over-play of the principle of financial leverage through investment in the financial market; (iii) the use of short-term loans for investment in real estate; or (iv) failure in the adjustment of its liquidity; then the government would act as the last resort of lenders, that is, the government would try to protect the depositors of the bank on the one hand, whilst on the other hand, rescuing the troubled company, through some special measure For the troubled company, such a policy would encourage it to borrow even more from the banks, because it comes to believe the myth "too large to fail." See: William H Overholt, "China's economic squeeze", in China's Reform, 2000, pp 13-33 Several public banks, or private banks, which have large amounts of public shares, form a team, which takes over the management of the troubled company; once the troubled company recovers, the management is handed back to the original owners under some conditions 508 T.-S Yu & D Xu This moral hazard problem took place in many of the East Asian countries, the most severely affected country being Korea Indeed the formation of the Korean chaebol, should be directly attributed to this myth Even in Taiwan, the government also adopted this special measure ever since the early 1980s, the main purpose of the government being to avoid the domino effect However, it seems that if a company temporarily experiences disequilibrium of its liquidity, then the government should consider rescuing it; but if the company has completely lost its ability to fulfill its repayment liability, then insolvency should be the destiny for that troubled company POLICY IMPLICATIONS A number of constructive policy implications can be drawn from the many lessons learned by the East Asian countries from their recent experiences; these are as follows: "Prevention is better than cure" Governments should provide inbuilt early warning systems which indicate changes in the financial conditions, in order to enable a timely response to any future financial turbulence Capital account liberalization should proceed, under the condition that a strong disciplinary mechanism is installed to replace the government's role The simple withdrawal of government intervention does not work The design of an internationally acceptable framework for prudential supervision of banking institutions is of paramount importance, and this should clearly demonstrate common standards across the different countries Proper tools and processes are essential in assessing financial risks To meet the requirements of economic liberalization, governments should pursue sound policies, along with enhanced informational flows, facilitated through greater transparency Lessons and Policy Implications 509 Domestic liberalization and the opening up of markets should proceed strictly in accordance with the textbook Reversing the sequence for whatever reason is dangerous Moral hazard, based on government sympathy for specific enterprises, has the potential to fuel further financial crises Financial enterprises should not become deeply involved with the provision of loans to affiliated enterprises that have acquired real estate throughout the country Once unpaid loan interest and bad debt are amassed, this would affect the survivability of the affiliated enterprises, finance companies and banks Governments should speed up the development of bond markets to meet the needs of long-term capital from the business sector When drastic depreciation takes place in neighboring countries, the adoption of either a fixed exchange rate system, or a policy of pegging the exchange rate to the US dollar, discourages exports and causes a reduction in the country's economic growth rate 10 Long-term capital inflow is good for direct investment If short-term funds are used for direct investment, clearly the result will be dangerous, by virtue of the very short maturity period of such loans 11 The combination of economic crisis and improvements in accounting systems has substantially increased the ratio of non-performing loan (NPLs) The rise in NPLs can drive up banks' operating costs, and also cause a negative spread between lending and deposit interest rates 12 Heavy governmental involvement in the private sector, whilst having clear benefits, can also result in undesirable outcomes if the necessary checks and balances are weak A worthwhile goal of reform is the creation of a business environment with clear divisions between government and enterprises INDEX adverse selection 178, 369, 392, 425 amplified coefficient 51 amplifying effect 69 annual wage supplement (AWS) 157 ASEAN countries 6, 15, 21, 498 Asia Development Bank (ADB) vii, 396 Asia-Pacific Economic Conference (APEC) 44,220 Asian Miracle 5, 28, 138, 139, 175, 258 Asian Monetary Fund (AMF) 44, 45 asset bubble 176 Association of Southeast Asian Nations (ASEAN) 44,151,298,498 asymmetric information 178, 179, 391, 392 asymptotic liabilities/export ratio (ALE) 292 B share 61, 67 bad debt 7, 19, 33, 40, 43, 324, 332, 437 Bangkok International Banking Facilities (BIBF) 265, 288 bank devisas 363 bank-driven governance system 441 base lending rate (BLR) 326, 328 Basle architecture 394 Big Bang 40 Black Monday 32, 35 bubble economy ix, 5, 19, 20, 25, 29, 30-35, 38, 40, 59, 60, 62, 76, 78, 84, 91,95,97,99,235,433,435,437-442, 499 CAMEL 368 capital account liberalization 290,391, 393, 395,423,498,499, 501, 504, 508 capital adequacy ratio (CAR) 79,3 80 capital control 290, 305, 306, 324, 326, 328, 336, 337, 341 capital flight 49, 64-66, 324, 355, 356, 372, 433 capital inflow 48-52, 59-63, 65, 75, 90, 106, 117-120, 123, 133, 135, 174, 235,236,292, 362,393,394,451,487, 497, 509 capital outflow 49-51, 62-65, 84, 134, 177, 236, 390, 396 Central Provident Fund (CPF) 155, 157 certified public accountant (CPA) 253 chaebol 94, 110-113, 115, 116, 124, 126-133, 139, 395, 424, 508 Chilean type 291 company ordinance 209 511 512 From Crisis to Recovery composite index 309, 314 compulsory superannuation scheme 208,209 computable general equilibrium (CCE) 433 contagion effect 141, 147, 180, 390, 410, 499 Corporate Debt Restructuring Committee (CDRC) 329,332 corruption 16, 17, 64, 88, 95, 291, 382, 400 creditor panic 177 crisis management 29,38,40,98,200, 203, 204 Currency Board Arrangement (CBA) 182,225 currency convertibility 50 currency devaluation 70, 73, 74, 199, 203, 296 current account surplus 49-51, 106, 122,124,129,133,135,155,240,242, 322, 339 Daewoo crisis 131 Danaharta 329-332, 336, 344 Danamodal 329-332, 336 debt ratio 53-57, 64, 97 debt service ratio 56, 356, 408 discount window 183, 192, 193, 200, 204, 206, 225 Dutch disease 351 East Asian Economic Caucus (EAEC) 45 economic miracle 5, 493 effective exchange rate (EER) 184 exchange rate system 6, 22, 29, 34, 36, 154, 156, 169, 170, 174, 182, 267, 495, 505, 509 exchange reserves 15, 16,20, 23, 105, 106,134,154, 155,168,183,191,233, 240,242,244,246,252,262,373,468, 495-497, 499 expanded commercial bank (EKB) 412 export-led growth policy 35 external debt 14-16, 104, 168, 246, 260,306,312, 324,347,349,356,357, 363,364,372,376,377,378, 384,387, 397, 406, 407, 422, 495-497, 501 external excess savings 18,21 "first generation" model 176, 260 fiscal policy 3,35,165,166,200,210, 211,220,222,258,300,318,321-323, 328, 340, 348, 354, 374, 500 floating exchange rate system 22,351, 355, 374, 495 foreign currency reservation 48, 50-52, 57-59, 65, 66, 69, 75, 493 foreign direct investment (FDI) 60, 276, 451 foreign trade deficit 58 free interest rate deposits 34 generally accepted accounting principles (GAAP) 252 Goldman and Sachs 423 Index 513 gross business revenue tax (GBRT) 250 Hong Kong interbank offered rates (HIBOR) 192 Hong Kong Monetary Authority (HKMA) 183,206 human capital 5, 252 import-substitution 232,319,374,426 initiative devaluation 49 internal excess investment 18,21 International Monetary Fund (IMF) 44,261,305,316 international speculator 6, 19, 21, 22, 67, 69, 192, 204, 215, 216, 242, 243, 495-497, 504, 506 invisible hand 21 Jomo 310,312,321,342,344 Krugman 5, 27, 102, 134, 138, 171, 176,178,217,324,337,344,386,393, 394 Kuala Lumpur interbank offer rate (KLIBOR) 326 Kuala Lumpur Stock Exchange (KLSE) 146,309 lender of last resort 144, 247, 253, 296, 297, 369, 370, 372, 379 linked exchange rate system 174,182 liquidity adjustment facility (LAF) 183 long term capital management fund (LTCM) 179 long-term credit bank 40 long-term uncertainty 39 Malay Lunch 78, 79 McKinnon 368, 386, 395, 396 minimum loan rate (MLR) 285 Mishkin 118,137,177,178,200,216, 363, 369, 386 monetary policy 34, 137, 155, 163, 183,184,199,205,220,249,253,277, 281,300,302,312,316,317,323,326, 327,338,340,352,372-374,379,386, 396, 420, 421, 426, 427, 442 monthly variable component (MVC) 157 Moody's Investors Service 334 moral hazard 18, 94-96, 110-112, 115,116, 120,124,126,129,130,134, 135,176,178,237, 332, 333, 342, 392, 424, 425, 442, 496, 499, 507-509 National Wages Council (NWC) 156 neo-mercantilist development model 102, 110, 113 neo-mercantilist era 111,120 nepotism 8, 16, 17, 25, 382 net error and omission 63 New Bridge Capital 131 New Miyazawa Plan 30,41,43, 44,45 514 From Crisis to Recovery Nikkei Index 30 Nippon Credit Bank 40 nominal effective exchange rate 156 non-performing loan (NPL) 48,70,76, 78-81, 83, 84, 95, 249, 297, 306, 360, 365, 366, 380, 393, 412, 509 Official Development Assistance (ODA) 43 over-loan problem 94, 441 Paris Club 376, 378 passive devaluation 49, 70 pegged exchange rate 176, 189, 191, 281, 372 Plaza Accord 30 policy to revitalize the housing industry 251 positive non-intervention 201 pump-priming 39 purchasing power 7, 19, 37, 144, 505 Radelet 102, 139, 386, 387 ratio of short-term debt 57 recapitalization 122, 371, 380, 382, 384 return on assets (ROA) 105 return on equity (ROE) 105 Ricardian equivalence 354 risk-weighted-capital-ratio (RWCR) 311 Rogoff 145, 172, 200, 215, 218 role of government 113,138,251, 296, 374 Sachs 23, 102, 139, 177, 200, 218, 387, 423 "second generation" model 176 "segyehwa" drive 119 self-fulfilling currency attack 145 short-term foreign debt 50, 51, 58 short-term investment Singapore Interbank Borrowing Rate (SIBOR) 285 small and medium-sized enterprise (SME) 246 soft budget constraint 116 speculative activities 22, 32, 35, 36, 178 state-owned enterprise 64,65,79-83, 85, 87, 93-95 state-owned financial institution statutory reserve requirement (SRR) 326 Stiglitz 342, 345, 392, 395, 500 Straits Times Index (ST Index) 148 "Tequila" crisis 257 Tobin's tax 92, 93, 372 Tom Yum Kung Disease 262 too large to fail 507 trade-oriented 24 Traker Fund of Hong Kong 207 Trilemma 280 twin deficits 30 unit labour cost 165,166 FROM CRISIS TO RECOVERY East Asia Rising Again? It is interesting to note that after two years of recession in East Asia, almost all the countries in this region are rising again In the wake of that sudden onslaught on the economies of East Asia, many new questions have come to the fore (and are waiting for the right answers), such as: How could the Asian countries have become so weak as to totally succumb to the financial crisis? What were the real causes of the crisis? What policy measures have the affected countries taken to combat the crisis and how effective have they been? As for the argument of "hands-off policy" versus "government intervention", which approach was more appropriate for curbing the expansion of the crisis? What are tbe policy implications of resolving the crisis? Why is East Asia rising again after the two-year recession? The editors of this volume organized a research team composed of leading economists from the ten East Asian countries: Thailand, Malaysia, Indonesia, the Philippines, Singapore, Hong Kong, Taiwan, Korea, mainland China and Japan One expert from the United States was also invited; he was responsible for making an aggregate analysis of the interdependence of the region in the context of a financial crisis Two meetings were held — the first in April 1999 and the second in January 2000 www worldscientific com 4534 he .. .FROM CRISIS 10 RECOVERY East Asia Rising Again? FROM CRISIS 10 RECOVERY East Asia Rising Again? Editors Tzong-shian Yu Chinese Institute of Economics and Business Dianqing Xu Huron College,... Stock Market Collapse Fig 1.2 The Southeast Asian Financial Crisis (An Explanatory Model) Financial Crisis in East Asia 19 savings, which is considered to be the main cause of the financial crisis. .. Financial Crisis in East Asia Tzong-shian Yu Japan Japan's Bubble Economy and Asia Lint Hua Sing 29 China Financial Crisis and Chinese Economy Dianqing Xu 47 Korea Korea Financial Crisis: The Crisis