The Developing Economies

Volume 37, Number 4 (December 1999)

■ The Developing Economies Volume 37, Number 4 (December 1999)
■ B5
■ 105pp
■ December 1999

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PDF files can be viewed for articles that were published by 2005.



Introduction (51KB) / Ippei Yamazawa

The Malaysian Financial Crisis: Economic Impact and Recovery Prospects (74KB) / Mohamed Ariff and Syarisa Yanti Abubakar


Medhi Krongkaew, "Capital Flows and Economic Crisis in Thailand," pp. 395-416.

The establishment of the Bangkok International Banking Facility (BIBF) in 1993 which was a part of Thailand's financial reforms allowed large inflows of capital into the country. These inflows were spent largely on speculative and non-productive projects and put upward pressure on the exchange rate, adversely affecting Thai exports and exposing the country to greater exchange risks. The sustained speculative attacks on the baht depleted the country's foreign reserves leading to the flotation of the baht. The ensuing crisis saw the onset of massive capital outflows, creating a credit crunch, bankruptcies, and sudden unemployment. After two years of active government borrowing and spending, capital has started to flow back into Thailand. But while the basic principle of free capital movement is still observed, the monetary authorities will have to be more careful in the management of new capital inflows.

Mohamed Ariff and Syarisa Yanti Abubakar, "The Malaysian Financial Crisis: Economic Impact and Recovery Prospects," pp. 417-38.

The effects of the financial crisis that engulfed Asia beginning in July 1997 have been harsh on the Malaysian economy. Up until then the country had been putting in a remarkable economic performance and was even billed as one of Asia's "miracle" economies. The initially negative economic and social impacts in the form of plummeting GDP growth rates, rising unemployment and inflation rates have improved significantly, coinciding with a switch in government policies from a relatively tight to easy fiscal and monetary policy stance. In the paper, the authors examine the various impacts that the Asian economic crisis has had on the Malaysian economy, analyze Malaysia's prospects for recovery in the future, as well as highlight some of the key challenges facing the country on the road to sustainable recovery.

Florian A. Alburo, "The Asian Financial Crisis and Philippine Responses: Long-Run Considerations," pp. 439-459.


This paper summarizes important policy responses to the Asian crisis and their consequences for the Philippines and its social conditions. From a larger perspective it seems that these responses were piece-meal approaches to what was a general equilibrium disturbance from an external shock.
Looking beyond the economic and financial repercussions and into the social impacts of the crisis, which has rarely been done, its adverse effects appear more pronounced.
The national government's response to the contagion did not help alleviate the impacts of the crisis and actually exacerbated it by curtailing essential government services to those adversely affected by the turmoil. When corrections were initiated to maintain these services, government bureaucratic delays resulted in their failure. Thus the social effects came from the indirect effects of the external shock and the direct effects from government responses.

Kim Dohyung, "IMF Bailout and Financial and Corporate Restructuring in the Republic of Korea," pp. 460-513.

At the early stages of the currency crisis the government of the Republic of Korea acceded to the IMF's stringent macroeconomic stabilization policies and the Fund's call for structural reform. The government introduced high interest rates and tight fiscal policies which paved the way for the opening of the financial market along with which other structural adjustments were put into effect. The result was that by the middle of 1998, interest rates could be brought down allowing the government to take stimulus measures through fiscal expansion which worked to offset the deflationary factors brought on by the structural adjustments. These steps led to the stabilization of the financial market and recovery of the real economy. But to get its economy back on the path of self-sustaining growth, Korea needs to push forward with its own reform program and deal with such deflationary factors as unemployment.

Kozo Kunimune, "Crisis in Japan and the Way Out: A Counterargument to Pessimistic Views," pp. 514-39.

This paper focuses on a review of the present state of, and outlook for the Japanese economy. The paper is composed of three parts. The first describes the interrelation between the crisis-ridden East Asian economies and Japan. I argue that Japan did not cause the Asian currency crisis. The second part describes the current state of the Japanese economy after the bubble burst. I also discuss the medium- and long-term challenges that face the Japanese economy. The third part concentrates on the issue of the "liquidity trap" Japan is experiencing. I argue that the yen's exchange rate is more likely to appreciate than depreciate by pumping liquidity into the economy while interest rates cannot be lowered any further, and therefore a "helicopter money" policy is the only way to induce a positive inflation rate and escape from the liquidity trap.