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Global Development and Poverty Reduction

Global Development and Poverty Reduction

The Challenge for International Institutions

International Institutions and Global Governance series

Edited by John-ren Chen and David Sapsford

At the beginning of the third millennium, underdevelopment and poverty continue to remain critical problems on a global scale. The purpose of this volume is to explore the various ways in which the institutions of the global economy might rise to the challenges posed by the twin goals of increasing the pace of global development and alleviating poverty.

Chapter 12: The 1997/98 Economic Crisis in Southeast Asia: Policy Responses and the Role of the IMF

Teofilo C. Daquila

Subjects: development studies, development economics, economics and finance, development economics, international economics


Teofilo C. Daquila INTRODUCTION What began as a currency crisis in Thailand resulted in a banking crisis and eventually generated a contagion effect to neighbouring countries including Indonesia, Malaysia, the Philippines and Singapore.1 However it was not contagion from Thailand that made the countries vulnerable to a financial crisis but the home-grown economic problems, which included a growing current account deficit, excessive short-term foreign borrowings, a banking sector weighed down by speculative property loans and corrupt government and business practices.2 The disturbances, however, were not limited to the Southeast Asian region, but some economies in the Asian region also felt the pinch, including South Korea, Hong Kong, Taiwan and Japan. Wade (1998) and Adelman and Yeldan (2000) also spoke about the global impact of the crisis. This chapter discusses the economic policies which were immediately adopted by the respective governments of Thailand, Indonesia, Malaysia, Singapore and the Philippines. These include international financial assistance, demand-management policies (fiscal, monetary and exchange rate policies), supply-side policies, capital controls and financial restructuring. We also examine the role of the international financial institutions in the crisis, particularly the IMF. INTERNATIONAL FINANCIAL ASSISTANCE Thailand and Indonesia had availed themselves of the international financial assistance organized by the IMF and the World Bank. In August 1997, the Thai government accepted an international financial package which consisted of a medium-term loan of US$17.2 billion with contributions from other countries to shore up Thai’s foreign exchange reserves.3 It also obtained 278 The 1997/98 economic crisis in...

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