The Challenge for International Institutions
Edited by John-ren Chen and David Sapsford
Chapter 12: The 1997/98 Economic Crisis in Southeast Asia: Policy Responses and the Role of the IMF
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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