A Comparative Study of East Asia and India.ppt

Introduction to the Crisis Bankruptcy rates skyrocket Stock markets crash Growth rates tumble Currency speculation forces Thai Baht depreciation Bad Policy Theory Dramatic increase in credit Socially Risky behavior encouraged Moral hazard by monetary authorities Financial Panic Theory Downturn in Real Economic Variables (GDP) Portfolio Investment as a % of GNP Credit Contraction Currency Depreciation International Reserves ($mill. SDRS) India’s International Reserves (USD$billions) % of Non-Performing Bank Assets in 1997 Capital Outflows Values in billions of US$ 4.86 5.19 5.35 5.89 7.47 5.65 5.81 8.12 Overall Budget Surplus 22.57 23.92 25.37 28.90 20.70 22.43 22.20 21.99 Gross National Savings 7.36 8.98 10.22 10.21 6.36 11.79 13.87 8.97 Inflation 1997 1996 1995 1994 1993 1992 1991 1990 Selected Macroeconomic Variables (India) Capital adequacy ratios are bank reserves set aside as a precaution against the failure of a loan or an investment. Thailand’s real estate- 28% of all lending Implicit guarantee of International Monetary Fund bailout % state owned banks –M, T, Kor. 8-13%, India 87 % Capital Account Convertibility is the degree to which financial assets can move across borders Partial Capital Account Convertibility Limits on the types of transactions Limits on the volume of transactions International capital played a much smaller role in Indian economy. Liberalization policy occurred in many sectors of the eco Real trade linkages are the connections between economies. These occur in the form of mutual trading partners, where competition in exports forces links between the two economies, Actual trade between two nations The East Asian Financial Crisis of 1997 unfolded against the backdrop of 3 decades of outstanding economic performance in East Asia. The crisis came as a surprise to many, and it spread rapidly through both financial and currency markets in the region. The intensity and duration of the crisis were inconceivable, and the e