past crisis experiences and its lessons for asia
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Past Crisis Experiences and its Lessons for Asia
Pierre L. SiklosViessmann Centre & BSIA
The Backdrop I
• The Asian crisis of 1997-98 continues to leave its mark– Most noticeable in the rise of foreign exchange
reserves– …but impact outside Asia-Pacific region limited
0
2
4
6
8
1980 1985 1990 1995 2000 2005 2010
Australia
0
10
20
30
40
50
1980 1985 1990 1995 2000 2005 2010
China
0
20
40
60
80
100
120
140
1980 1985 1990 1995 2000 2005 2010
Hong Kong
0
10
20
30
40
1980 1985 1990 1995 2000 2005 2010
Indonesia
0
4
8
12
16
20
24
28
1980 1985 1990 1995 2000 2005 2010
India
0
5
10
15
20
25
1980 1985 1990 1995 2000 2005 2010
Japan
0
5
10
15
20
25
30
1980 1985 1990 1995 2000 2005 2010
Korea
0
10
20
30
40
50
60
1980 1985 1990 1995 2000 2005 2010
Malaysia
0
4
8
12
16
1980 1985 1990 1995 2000 2005 2010
New Zealand
0
5
10
15
20
25
1980 1985 1990 1995 2000 2005 2010
Philippines
40
50
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70
80
90
100
1980 1985 1990 1995 2000 2005 2010
Singapore
0
10
20
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40
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1980 1985 1990 1995 2000 2005 2010
Thailand
-3
-2
-1
0
1
2
3
1980 1985 1990 1995 2000 2005 2010
Moving average H -P filtered
Australia
-8
-6
-4
-2
0
2
4
6
1980 1985 1990 1995 2000 2005 2010
Moving average H -P filtered
China
-20
-10
0
10
20
30
40
1980 1985 1990 1995 2000 2005 2010
Moving average H -P filtered
H ong Kong
-5
0
5
10
15
20
25
1980 1985 1990 1995 2000 2005 2010
Indonesia H -P filtered
Indonesia
-6
-4
-2
0
2
4
6
1980 1985 1990 1995 2000 2005 2010
India H -P filtered
India
-4
-3
-2
-1
0
1
2
3
4
1980 1985 1990 1995 2000 2005 2010
Moving average H -P filtered
Japan
-8
-6
-4
-2
0
2
4
6
1980 1985 1990 1995 2000 2005 2010
Moving avrage H -P filtered
Korea
-15
-10
-5
0
5
10
15
20
25
1980 1985 1990 1995 2000 2005 2010
Moving average H -P filtered
Malaysia
-4
-2
0
2
4
6
8
1980 1985 1990 1995 2000 2005 2010
Moving average H -P filtered
N ew Zealand
-4
-3
-2
-1
0
1
2
3
4
5
1980 1985 1990 1995 2000 2005 2010
Moving average H -P filtered
Philippines
-8
-4
0
4
8
12
1980 1985 1990 1995 2000 2005 2010
Moving average H -P filtered
Singapore
-6
-4
-2
0
2
4
6
8
10
1980 1985 1990 1995 2000 2005 2010
Moving average H -P filtered
Thailand
The Backdrop II
• Financial crises in the US and the € area continue to this day 5 years after it first appeared in the US, 2 years after it erupted in Europe. – Its impact has been global– Raised the question of coupling/de-coupling of business
cycles
Region 1980-2010 ‘Crises’ Years
ASEAN 5.16 (3.12) 2.50 (5.61)
CEE 2.61 (3.09) 2.80 (3.31)
China 10.03 (2.81) 10.07 (2.19)
EU 1.97 (1.58) 1.21 (2.76)
Japan 2.22 (2.51) -0.29 (3.11)
LA 2.86 (2.35) 3.60 (2.91)
ME 3.44 (1.35) 4.15 (1.32)
NIC 6.23 (3.17) 2.96 (4.17)
USA 2.68 (2.04) 1.79 (2.73)
1997-982009-10
Real GDP Growth
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
2000 2003 2006 2009 2010
Plot of conditional correlations
USA,ASEAN USA,CEE USA,CHN USA,EUUSA,JAP USA,LA USA,ME USA,NIC
vis-a-vis US
0.0
0.2
0.4
0.6
0.8
1.0
2000 2003 2006 2009 2010
Plot of conditional correlations
CHN,ASEAN CHN,CEE EU,CHN JAP,CHNLA,CHN ME,CHN NIC,CHN
vis-a-vis China
Implications
• #1– Most crises are regional, only a very few are global– Consequence? Policy responses will be different
• In Asia, focus has been on protection from ‘foreign’ shocks• In the GFC, focus is on regulation, supervision of financial markets,
the role of central banks, and fiscal policy’s impact
Implications
• # 2– Improvements in the ‘delivery’ of monetary policy
(viz., central bank transparency) did not prevent the crisis, or spillovers around the world, and is therefore insufficient although these improvements exaggerated
• IT economies fare much better
0.0
2.5
5.0
7.5
10.0
12.5
15.0
1998 2000 2002 2004 2006 2008
TI_AUS
0.0
2.5
5.0
7.5
10.0
12.5
15.0
1998 2000 2002 2004 2006 2008
TI_CHN
0
3
6
9
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15
1998 2000 2002 2004 2006 2008
TI_HKG
0.0
2.5
5.0
7.5
10.0
12.5
15.0
1998 2000 2002 2004 2006 2008
TI_IND
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6
9
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15
1998 2000 2002 2004 2006 2008
TI_IDA
0.0
2.5
5.0
7.5
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15.0
1998 2000 2002 2004 2006 2008
TI_JAP
0.0
2.5
5.0
7.5
10.0
12.5
15.0
1998 2000 2002 2004 2006 2008
TI_KOR
0.0
2.5
5.0
7.5
10.0
12.5
15.0
1998 2000 2002 2004 2006 2008
TI_MAL
0.0
2.5
5.0
7.5
10.0
12.5
15.0
1998 2000 2002 2004 2006 2008
TI_NZD
0.0
2.5
5.0
7.5
10.0
12.5
15.0
1998 2000 2002 2004 2006 2008
TI_PHI
0.0
2.5
5.0
7.5
10.0
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15.0
1998 2000 2002 2004 2006 2008
TI_SIN
0.0
2.5
5.0
7.5
10.0
12.5
15.0
1998 2000 2002 2004 2006 2008
TI_THA
CENTRAL BANK TRANSPARENCY
Implications
• # 3– Common currency ideal in Asia-Pacific very much
on the back burner. Unlikely to be taken seriously or contemplated in the near future
Lessons for Asia?
• # 1: GFC is yet another failure of international financial institutions (viz., IMF)– This time its not the advice, it’s the capacity ,
inaction, and inability to apply ‘moral suasion’
Lessons for Asia?
• # 2: International policy coordination might help but cannot be left to existing institutions– It needs champion(s). Are there any in Asia?
Lessons for Asia?
• # 3: Exchange rate regimes should not be managed (whenever possible)– Creates distortions, complicates necessary policy
coordination, delays necessary policy responses, not to mention political problems
Lessons for Asia?
• Transparency is a necessary but NOT sufficient conditions in managing crises– There is room for improvement– Sequencing of responses needs to be thought
through (e.g., Europe since 2010)– Otherwise, transparency actually can make a bad
situation worse
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