Lessons from East Asia's Crisis and Recovery

Bacha, Obiyathulla I. (2004): Lessons from East Asia's Crisis and Recovery. Published in: Asia - Pacific Development Journal , Vol. 11, No. 2 (December 2004): pp. 81-102.

Abstract

This paper provides an empirical analysis of the currency crisis and recovery in three East Asian countries, Malaysia, Thailand and South Korea. Using macro economic data for the three countries over a 13 year period, 1990 – 2002, the paper examines the factors leading to the crisis, the policy response to the crisis, an evaluation of their recovery and the lessons that can be learnt. During the seven year period prior to the crisis, all three countries experienced very rapid GDP growth. Collectively, average annual GDP growth was 11.5%. This growth however was fueled by rapid monetary growth, current account deficits, negative S-I gaps and short term capital inflows. As a result, serious structural weaknesses were built. Overvalued exchange rates enhanced the vulnerabilities. The two year period of crisis, saw sharply negative GDP growth in all three countries. These were accentuated by the contractionary policies. While Thailand and South Korea had to turn to the IMF and adopt the IMF package, Malaysia took the ‘unorthodox’ route of capital controls and currency peg. The paper argues that despite different policy stance the underlying responses were the same. All three countries experienced a V-shaped recovery. Malaysia’s controversial policies appears to have provided no additional advantage. The paper concludes with an outline of key lessons for policy makers from the experience of the three countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Lessons from East Asia's currency crisis; and recovery
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

References

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