1

Draft

7/25/04

Assessing Reserve Adequacy in Asia

Jung Sik Kim,* Jie Li,** Ozan Sula,** Ramkishen Rajan,*** and Thomas D. Willett**C

I. Introduction and Overview

There has been considerable controversy about the huge accumulation of

international reserves in recent years by a number of Asian countries. Wide ranges of

explanations have been offered for this behavior. Some have argued that it reflects

blatant mercantilism that is putting undue adjustment burdens on other regions such as

Europe. At the other extreme are interpretations that these accumulations have just

reflected prudent reserves management in light of the Asian crises and the absence of

the development of strong quasi lender of last resort capabilities by the IMF. In between,

* Yonsei University, kimjs@yonsei.ac.kr ** Claremont Colleges, Claremont Institute for Economic Policy Studies, and Freeman Program in Asian

Political Economy *** Adelaide University and Claremont Colleges C Corresponding author, Thomas.Willett@cgu.edu

2

there are explanations based on smoothing exchange rate movements and providing

temporary stimulus to help overcome domestic recessions. Undoubtedly countries’

behavior is often motivated by more than one objective and the relative importance of

these differential possible motivations may vary across countries and overtime.

Empirical discrimination among the differential explanations is not an easy

matter and we do not attempt to do so here. Rather we take this controversy as

motivation for investigating concepts of reserve adequacy and their implications for

whether current reserve levels of a number of Asian countries are excessive, insufficient,

or about right.

There is of course already an abundance of theoretical literature on this subject

and broad understanding that in a world of substantial capital mobility traditional

measures of reserve adequacy in terms of months worth of imports are of limited

usefulness. There have been several recent empirical studies of the demand for

international reserves, but as Christian Mulder points out at best these can only identify

whether a country is out of step with average behavior. It could still be following the

better policy.

Traditional models of the demand for reserves assumed that the probabilities

and magnitudes of reserve drains were independent of countries’ reserve holdings.

3

However, modern second generation crisis models emphasize the possibility of multiple

equilibria in a world of capital mobility where a countries’ underlying payments

position is neither quite strong nor hopelessly weak, i.e. where it is in a vulnerable zone.

In such circumstances, a country’s reserve level not only influences its ability to finance

speculative runs on its currency, but can also influence their probability of occurring.

Thus we can think of the demand for reserves as being influenced by three

types of considerations (besides costs), the ability to finance underlying payments

imbalances, the ability to provide liquidity in the face of runs on the currency, and the

preventive function of reducing the probability of runs on the currency. All of these

considerations will be influenced in turn by external and internal shocks, the degree of

exchange rate flexibility, the ability and willingness of governments to make domestic

policy adjustments, and the magnitudes of currency pressure that can be quickly brought

to bear. Of course, there is always the possibility of domestic currency holders running

for the exits, but it is widely believed that country’s exposure to currency runs is also

heavily influenced by the extent of foreign capital in the country, especially liquid

capital such as portfolio investments and short-term bank loans. This has led some of

the more sophisticated governments and central banks to develop rules of thumb for

reserve adequacy based on different types of international liabilities. The Bank of Korea

4

provides an example.

In this paper we address the issues both of sensible values for such coverage

ratios and also the likely sufficiency of focusing only on additive coverage ratios as

opposed to considering interactions among the different categories and

interrelationships with other variables considered in the demand of reserves literature.

We draw particularly on two types of empirical literature, the analysis of the

behavior of different types of capital flows during currency crises and empirical models

of currency crises. The latter have implications for the ability of high reserve levels to

protect countries from currency crises.

The former literature raises questions about the primary emphasis in some of

the recent theoretical literature (e.g. Calvo and Mendoza (2000)) and some policy

circles on the particular danger of portfolio investment. In the Asian crises the outflow

from bank loans was much greater. (See Willett et al (forthcoming)).

The second type of literature has clearly demonstrate the importance of high

levels of reserves relative to domestic monetary aggregate and short term foreign debt in

protecting countries from currency crises. While we know there is a big difference

between the effects of very high and very low reserve ratios, we know relatively little

about the relationships in between. Furthermore our knowledge of the interrelations

5

among these ratios and the strength of underlying fundamentals is still rather sketchy.

Sachs, Tornell, and Velasco (1995) assume and find empirical support for the

proposition that high reserves ratios can fully offset weak fundamentals. Bussiere and

Mulder (1999) argue that a significant higher reserve can limit the impact of contagion

even when the country is facing the situation of moderately high current account deficit

and appreciated real exchange rate. They also find empirical support for Greenspan and

Guidotti’s argument to hold reserves in excess of short-term debt by remaining maturity.

Bussiere and Mulder (2003), offer a simple rule of thumb based on the results of

empirical tests: the reserve target should be set at the level of short-term debt, which

should be augmented by 5% for each one per cent of current account deficit and by 1%

for each per cent of overvalued exchange rate. Willett et al (forthcoming b), question the

robustness of the STV conclusion that high reserves can offset weak fundamentals and

point out that it is at odds with our standard crisis models. With fundamentals in the

vulnerable zone high reserves could have a powerful effect in protecting against crises,

but with weak fundamentals first generation crisis models imply that reserve levels

should only influence the timing of crises, not whether they occur. This also suggests

that reserve needs should be related to the state of fundamentals in a non linear manner.

We will also investigate concepts of reserve adequacy where countries may be

6

subject to overly optimistic bubbles of capital flows which subsequently burst. While

extremely difficult to capture in formal optimizing crises models, many observers have

suggested that such behavior has characterized a number of recent currency crises

including Asia in 1997-98. See, for example, Willett et al (forthcoming b).

Clearly a country with strong fundamentals has less need for international

reserves. Reserves cannot be accumulated quickly, however, so in setting current targets

for reserve levels and rates of accumulation countries need to consider not only their

current fundamentals but a guesstimated probability function of the future evolution of

their fundamentals and external shocks.

Another approach would be to adopt the value-at-risk (VAR) methodology that

has become so popular with private sector financial risk managers. Based on historical

behavior this approach calculates the probability of different degrees of financial loss

over specified time periods. For reserve management purposes the analog would be the

probabilities of different size losses of reserves. This is analogous to the traditional use

of the volatility of reserves as an argument in the demand for reserves function. Two

caveats are important, however. First, as Long Term Capital Management found to its

dismay, different types of shocks can give rise to different patterns among returns so

that as the investment-brokers now warn, past performance is not a guarantee of future

7

returns. Typically VAR types statistical exercises use data over much too short time

periods to yield much confidence that they capture most of the range of possible

developments. Thus the designers of VAR methodologies recommend that they be

complemented by stress testing, that is, by imagining various types of shocks and

simulating these effects. This is similar to military planner efforts to calculate what it

would takes to be able to engage effectively in a specific set of actions. We suggest

that the developments during recent crises can offer useful information for these

purposes and illustrate how these experiences can be used for stress testing or scenario

analysis to help countries determine what levels of reserves would be sufficient to

protect themselves from crisis of the order of magnitude of recent ones.

Note that for these purposes vulnerability to capital account crises should not be

judged by standard measures of the variance of different types of capital flows. Such

measures confound the variability of rates of inflow – which will likely be of minor

importance for policy – with the size of capital flows reversals – which are much more

important. Indeed some studies have used very sophisticated econometric methodology

to study the variability of different types of capital flows, but since the data sample was

dominated by periods of capital inflows, the results had little predictive power with

respect to the magnitude of different types of capital outflows during the Asian crises.

8

The greater variability of portfolio investment during the inflow period was not matched

by greater capital flow reversals during the crisis period. The outflows from the banking

sector were for greater, both in absolute terms and as a percentage of previous inflows.

(See Willett et al (forthcoming a)).

We will present analysis of the ratios of reversals for different types of capital

flows during the Mexican, Russian, Brazilian, and Argentine as well as the Asian crises

to investigate whether theirs is a strong case for holding different levels of “reserve

backing” against different types of capital flows and consider alternative measures of

the “size” of recent crises and their implications for levels of reserve adequacy for a

number of Asian countries today. These measures will also be compared with recent

estimates of demand for reserves from work at the International Monetary Fund (Edison

(2003)) and by Aizenman and Marion (2002).

We conclude with a discussion of current policy issues related to reserve

management in Asia and the issue of whether excessive reserve accumulations are

posing serious problem for the global adjustment process.

9

II. New Benchmarks to Reserve Adequacy

For the post war period, the criteria of reserve adequacy was that reserves

should be sufficient to pay for three months of imports. This criteria was appropriate

when the capital flows are limited. However, as the emerging economies had liberalized

the short term capital movement during 1990s, most of the countries are exposed to the

risk of sudden capital outflow. Several years ago, Alen Greenspan, Chairman of Fed and

Pablo Guidotti, deputy Finance Minister of Argentina proposed using short term debt as

a yardstick of reserve adequacy. Bird and Rajan(2002) and Aizenman and Marion(2003)

examined the reserve adequacy using reserve ratio to short term external debt

empirically.

The debt based measures of reserve adequacy monitor only external drains,

and internal drain or capital flight is neglected. Wijinholds and Kapteyn(2001) proposed

a new criteria of reserve adequacy for the emerging market economy by including both

domestic and external drains.

However, these criteria also have some drawbacks in estimating the necessary

reserves for the emerging market economies. First, determining the appropriate level of

reserves for a particular country, one should focus on the most vulnerable items on the

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balance of payments or main potential drains on reserves. The short term external debt

consists of several components such as bank loan, securities issued from aboard and

trade credit according to the BIS. Among these, it is known that the main drain on

reserve is bank loan because usually it is not renewed during the crisis. In this aspect,

bank loan rather than total short term debt should be concerned in the discussion of

reserve adequacy.

Moreover, all of the bank loan will not be drained during the crisis. No roll over

bank loan will be a main drain. The country will increase its reserve level when it has a

lower roll over ratio. However, it is difficult to get the roll over ratio which could be

applied to the estimation of reserve. Actual capital outflow in bank loan should be

concerned.

Second, some emerging market economies have very high proportions of

foreigner’s stock and bond investment in their domestic financial market. In these

countries, the portfolio outflow should be focused because the portfolio investment

could be another drain during the crisis. In the case of Korea, foreign stock investment

holding is 43% of current total stock value in Korea.

Although people worries about that most of the portfolio investment flowed out

during the crisis, in practice it is difficult that all of the foreign investment to be drained

11

during the crisis, because they will experience big loss by the fall of stock price and

large exchange rate depreciation. In spite of these losses, there could be some portfolio

capital outflow during the crisis. Thus, actual portfolio outflow should be measured for

the estimation of appropriate reserve.

Concerning these factors, in measuring the size of capital account crises and their

implication for the size of prudent precautionary reserves, two simple benchmarks come

to mind. One is the size of actual outflows during the crisis. The second is the change in

the size of net flows from their previous levels. (Because of year to year fluctuations the

average of several previous years should probably be used as the benchmark)

The first measure would be appropriate where the rest of the balance of payments

had been in approximate balance so that previous capital flows had their counterpart

primarily in changes in reserves.

The second measure would be most appropriate where prior to the crises the other

accounts, especially the current account, had adjusted fully to the net capital flows

yielding approximate overall payments balance. In such situation where previous capital

inflows were large, then a sizable fall in inflows could cause a problem. For example if

net inflows fall from 5 to 1 percent of GDP while the current account deficit remains at

5 percent of GDP, there would generate a financing adjustment problem of 4 percent of

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GDP. This would create a greater need for reserves to smooth as cushion the adjustment

than in the case of a country that went from balance in the capital and current account to

an actual capital outflow of all or two percent of GDP. Thus sudden stops or capital flow

reversals needn’t always require actual net outflows to be a problem.

Of course, the two simple measures just described represent the two extremes of

zero and full adjustment to previous capital flows. Often the actual situation will be one

of partial adjustment. As a rough gauge of the degree of adjustment we could compare

the average change in reserves with the average net capital flows over the preceding few

years. We also need to remember that while the most dramatic of the recent crises have

usually been preceded by large net capital inflows, there isn’t always the case.

Traditionally crises have often been preceded by substantial periods of capital flight and

reserve losses.

III. Reserve Adequacy in Asia

1. New Benchmarks of Reserve Adequacy

(1) Capital Outflow Measure

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As shown in Figure 1, most of the Asian countries have increased their reserve

holdings since the crisis in 1997. Especially, Korea, China, Indonesia and Japan’s

reserves have been accumulated rapidly since 1997 until recently.

<Figure 1> here

Table 1 shows the reserve adequacy of Asia in 2003 by the previous benchmark

which is the sum of the three months import and short term external debt. In table 1,

most of the Asian countries had excess reserves except Philippine and Hong Kong.

<Table 1> here

However this benchmark did not concern about actual outflow of short term

external debt, domestic drain and portfolio outflow, which could be main drains during

the crisis. In this case, our new benchmarks which are the actual capital outflow and

capital flow reversal could be useful criteria in estimating appropriate level of reserve.

Table 2 indicates the capital outflows in Asian countries during the crisis during

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1996-1997. 1 During the crisis in 1997, there had been high capital outflows in Korea,

Indonesia and Thailand.

<Table 2 > here

Table 3 illustrates several combinations of different types of capital flows in

Asia, in which Korea had been experienced higher capital outflow based on the sum of

error and other loan.

<Table 3> here

Table 4 shows that the ratios of capital outflow over the GDP during the crisis.

Based on the benchmark of error and other loan, Korea, Thailand and Indonesia had

higher ratios. In table 5, capital outflows were measured by M2 standard during the

crisis and the ratios were higher in Korea, Indonesia, Thailand and Philippine. Table 6

indicates that the ratio of maximum capital outflow over M2.

1 In table 2, error means the domestic drain and portfolio(-) is the portfolio outflow. FDI is the net

outflow of foreign direct investment and other loan is the outflow of short term bank loan. FAC means the

balance of financial account. All data come from IFS data disk of IMF.

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<Table 4> < Table 5> and <Table 6> here

(2) Capital Flow Reversal Measure

Table 7 and Table 8 shows the case of capital flow reversal which is the new

benchmark. The similar results are found as the benchmark of capital outflow. Korea,

Thailand and Indonesia had experienced higher capital flow reversals during the crisis.

<Table 7> and <Table 8> here

Table 9 and Table 10 indicate the maximum ratios of capital flow reversals

based on M2 standard in Asia during the crisis.

<Table 9> and <Table 10> here

2. Estimation of Appropriate Level of Reserve

In table 11, we estimated the appropriate level of reserve by applying these

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ratios to the GDP and M2 of 2003. The estimated reserve level means that potential

capital outflow of 2003 in the case of crisis. Based on the results, the maximum capital

outflow might be $93billion and $52 billion in Korea based on the benchmark of M2

and GDP in the case of error and other loan. This outflow exceeded the actual reserve

holding in 2003. It is found that all of five Asian countries had excessive reserve based

on our new benchmarks as shown in Figure 2.

<Table 11> and <Figure 2> here

Even though we concerned about the three months imports, which are shown in

table 1, in addition to the potential capital outflow, most of Asian countries seemed to

hold excessive reserves.2

In Figure 3, the potential capital outflow in China is estimated during the crisis.

Here, we applied the both ratios of Malaysian and Thailand types’ capital outflows.

China’s reserve holding had been excessive based on the Malaysian type capital outflow,

whereas it was insufficient based on the Thailand type.

<Figure 3> here

Conclusively, the results based on the new benchmarks indicate that Asian

countries had excessive reserve holdings in 2003.

2 In the capital outflow estimation, we didn’t concern about the roll-over bank loans which was

negotiated with creditor countries or IMF during the crisis.

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IV. Conclusion

Asian countries had experienced the crisis in 1997 by opening their financial

market during 1990s. Since then, they have accumulated international reserves.

However excessive reserve accumulation will result serious costs even though it also

has some benefits. Asian countries believe that benefits are greater than the costs, and

continued to increase the reserve.

They believe that reserve accumulation will impose less cost to their economy

which has weak fundamentals than other structural adjustment policies for the

prevention of another crisis. Moreover, export increases by intervening foreign

exchange market and exchange rate volatility might be reduced by smoothing operation.

However, there are serious costs of reserve accumulation. The money supply

and inflation will increase by intervention. Furthermore, the misalignment will result

speculation and finally the country will be exposed to the risk. Therefore, new criteria or

more specific benchmarks should be provided.

The previous benchmarks had three drawbacks. First, the standard is a little bit

ambiguous, not specific. Total short term debt is considered for the appropriate reserve,

whereas no roll over bank loan is one of the main drains. Second the portfolio

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investment is not included in the estimation of reserve even though it could be flow out

during the crisis. Third, in estimating reserve, the previous benchmarks didn’t count the

actual capital outflows and reversals. It should be considered as the important parts of

appropriate level of reserve because those are related to the crisis.

In this paper, we examined the reserve adequacy in Asia by using new approach

to the reserve holding. New benchmarks of capital outflow and capital flow reversal are

tested and the necessary reserve levels are estimated. The results indicate that most of

Asian countries had excessive reserve holdings in 2003. Even though we concern three

months import payment, it finds that current reserve holdings of most Asian countries

are excessive levels.

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References Aizenman, Joshua and Nancy Marion, 2002. “The High Demand for International Reserves in the Far East: What’s Going On?” Journal of the Japanese and International Economics, Oct. 2002. Bank of Israel Foreign Currency Department, Annual Report, 2001. Bird, Graham and Ramkishen Rajan, 2003. “Adequacy of Reserves in the Aftermath of Crises”, The World Economy, vol. 26, pp 873-891. Bussiere, Matthieu and Christian Mulder, 1999. “External Vulnerability in Emerging Market Economies: How High Liquidity Can Offset Weak Fundamentals and the Effects of Contagion”, IMF working paper. Bussière, Matthieu and Christian Mulder, 2003. “Which Short-term Debt over Reserve Ratio Works Best? Operationalising the Greenspan Guidotti Rule”.

Calvo, A. Guillermo, and Enrique G. Mendoza, “Rational Contagion and the Globalization of Securities Markets”, Journal of International Economics, No 51, 2000, p79- 113.

Chuhan, Punam, Gabriel Perez-Quiros, and H. Popper. “The Capital Flow Mix: Foreign Direct Investment, Short-term Investment, and Other Ingredients”. Working Paper, Santa Clare University, October 1997. Claassen, Emil-Maria. “The Optimizing Approach to the Demand for International Reserves: A Survey”, Recent Issues in International Monetary Economics, Edited by E. Claassen and P. Salin, 1974. Claessens S., Michael P.Dooley and Warner A. “Portfolio Capital Flows: Hot or Cold?” The World Economic Review, vol.9 1995, p: 153-174 Disyatat, Piti. “Currency Crises and Foreign Reserves: A Simple Model”, IMF working

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paper, WP/01/18. Edison, Hali, 2003. “Are Foreign Exchange Reserves in Asia too High?” World Economic Outlook, Chapter 2, IMF, Sep. Flood, Robert and Nancy Marion, 2001. “Holding International Reserves in an Era of High Capital Mobility”. Gabriele A., Boratav K. and, Parikh A. “Instability and Volatility of Capital Flows to Developing Countries”. World Economy, v23, 2000: 1031-56 IMF, 1993. “Balance of Payments Manual” Fifth Edition. IMF, 2000. “Debt- and Reserve-Related Indicators of External Vulnerability”. Movchan, Veronika, 2002. “Criteria for International Reserves’ Adequacy: What Level of Reserves does Ukraine Need?” Mulder, Christian and Manuel Rocha, 2001. “A New Approach to Estimating Optimal Reserve Levels”, Working Paper, IMF. Nitithanprapas, Ekniti and Thomas Willett. “A Currency Crises Model That Works: A Payments Disequilibrium Approach,” Working Paper, Claremont Graduate University, 2000. Oh, Junggun, 2003. “Reserve Accumulation and Exchange Rate Policies in East Asia,” paper presented at the Claremont Conference on Exchange Rate Policy, 2004. Patnaik, Ila, 2003. “India’s Policy Stance on Reserves and the Currency”, http://openlib.org/home/ila. Sarno L. and M. P. Taylor, “Hot Money, Accounting Labels and the Permanence of Capital Flows to Developing Countries: An Empirical Investigation”, Journal of Development Economics, vol.59 1997, p:337-364 Wijnholds, J. Onno de Beaufort and Arend Kapteyn, 2001. “Reserve Adequacy in

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Emerging Market Economics”, Working Paper, IMF, WP/01/143. Willett, T., A. Denzau, A. Budiman, C. Ramos and J. Thomas, “The Falsification of Four Popular Hypothesis about International Financial Behavior during Asian Crises”, The World Economy (forthcoming). Willett, T., E. Nitithanprapas, I. Nitithanprapas, and S. Rongala, “The Asian Crises Reexamined,” Asian Economic Papers (forthcoming).

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<Figure1> Trend of Foreign Reserve(Korea)

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Foreign Reserve(Hong Kong)

0

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40000

60000

80000

100000

120000

140000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

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Foreign Reserv e(China)

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Foreign Reserve(Indonesia)

0

5000

10000

15000

20000

25000

30000

35000

40000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Foreign Reserve(Thailand)

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

24

Foreign Reserve(Japan)

0

100000

200000

300000

400000

500000

600000

700000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Foreign Reserv e(Philippine)

0

2000

4000

6000

8000

10000

12000

14000

16000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Foreign Reserve(Singapole)

0

20000

40000

60000

80000

100000

120000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

25

Foreign Reserv e(Malay sia)

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

26

<Table 1> Reserve Adequacy in Asia (2003)

(Unit: Millions of U.S Dollars)

Foreign

Reserve

(A)

Monthly Import

(3 months)

(B)

Short-Term

Debt

(C)

(B)+(C) A-(B+C)

Korea 155,284 44,696 56,249 100,945 54,339

Japan 663,289 103,249 - 103,249 560,040

China 408,151 103,266 40,187 143,453 264,698

Malaysia 44,515 20,487 11,897 32,384 12,131

Philippine 13,457 9,628 11,111 20,739 -7,282

Indonesia 34,962 10,421 15,706 26,127 8,835

Thailand 41,077 19,821 11,553 31,374 9,703

Singapore 95,746 32,699 60,707 93,406 2,340

Hong Kong 118,360 57,974 72,091 130,065 -11,705

* source : BIS/IMF/OECD/World Bank Statistics for External Debt

<Table 2> Capital Outflows in Crisis Year and the Following Year

(Unit: Billion US $)

Country FAC Errors FDI Portfolio Other

Loans

Changes

Of

Reserves

Indonesia -1.4 -0.8 4.1 -4.5 -13.9 4.46

Korea -1.4 -11.3 -0.9 13.2 -31.3 17.94

Malaysia -0.4 2.9 7.3 0 2.4 -1.45

27

Philippines 8.1 -6 3.2 -0.3 2.9

-0.80

Thailand -13.7 -6 10.5 4.9 -6.3 -8.91

<Table 3> Capital Outflows in Crisis Year and the Following Year (Cont’)

(Unit: Billion US $)

Country FAC+Errors FAC+Errors-

FDI

Errors+

Other Loans

Errors+

Other Loans+

Portfolio

Indonesia -2.2 -6.4 -14.7 -19.2

Korea -12.7 -11.7 -42.6 -29.4

Malaysia 2.5 -4.8 5.3 5.3

Philippines 2.1 -1.1 -3.1 -3.4

Thailand -19.7 -30.2 -12.3 -7.4

<Table 4> Ratios of Capital Outflows over GDP in Crisis Year and the Following Year

Countries FAC+Errors FAC+Errors-FDI Errors+Other

Loans

Errors+Portfolio

+Other Loans

Indonesia -1.00 -2.85 -6.56 -8.58

Korea -2.56 -2.37 -8.57 -5.92

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Malaysia 2.54 -4.73 5.24 5.27

Philippines 2.58 -1.31 -3.79 -4.20

Thailand -10.93 -16.77 -6.86 -4.15

<Table 5> Ratios of Capital Outflows over M2 in Crisis Year and the Following Year

(Unit: %)

Countries FAC+Errors FAC+Errors-FDI Errors+Other

Loans

Errors+Portfolio

+Other Loans

Indonesia -1.89 -5.41 -12.46 -16.29

Korea -6.00 -5.56 -20.12 -13.89

Malaysia 2.75 -5.13 5.67 5.71

Philippines 4.59 -2.32 -6.73 -7.46

Thailand -13.53 -20.75 -8.49 -5.13

<Table 6> Maximum Sizes of Capital Account Crises as Percentage of M2

Countries Ratios Scaling Factor Types of Capital

Outflows

Indonesia -0.17 M2 Errors+Other

Loans+Portfolio

Korea -0.20 M2 Errors+Other Loans

Malaysia -0.05 M2 FAC+Errors-FDI

Philippines -0.08 M2 Errors+Other

Loans+Portfolio

Thailand -0.21 M2 FAC+Errors-FDI

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<Table 7> Capital Reversals in Crisis Year and the Following Year

(Unit: Billion US $)

Country FAC Errors FDI Portfolio Other

Loans

Changes of

Reserves*

Indonesia -8.74 0.29 1.29 -7.45 -15.11 4.46

Korea -13.86 -10.91 0.46 3.34 -38.45 17.94

Malaysia -7.94 2.78 2.54 0.87 0.74 -1.45

Philippines 2.63 -4.92 2.25 -1.69 1.36

-0.80

Thailand -28.39 -5.18 9.10 1.59 -11.74 -8.91

<Table 8> Capital Reversals in Crisis Year and the Following Year (Cont’)

(Unit: Billion US $)

Country FAC+Errors FAC+Errors-FDI Errors+Other

Loans

Errors+Other

Loans+Portfolio

Indonesia -8.46 -9.75 -14.82 -22.27

Korea -24.78 -25.23 -49.36 -46.02

Malaysia -5.16 -7.70 3.52 4.39

Philippines -2.29 -4.54 -3.56 -5.25

Thailand -33.57 -42.67 -16.92 -15.33

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<Table 9> Maximum Sizes of Capital Account Crises (I)

Countries Ratios* Scaling Factor Types of Capital

Outflows

Indonesia -0.189

M2 Errors+Other

Loans+Portfolio

Korea -0.234

M2 Errors+Other Loans

Malaysia -0.083 M2 FAC+Errors-FDI

Philippines -0.113 M2 Errors+Other

Loans+Portfolio

Thailand -0.293 M2 FAC+Errors-FDI

<Table 10> Maximum Sizes of Capital Account Crises (II)

Countries Capital Outflows Capital Reversals

Indonesia -0.17 Err+OL+Port -0.189

Err+OL+Port

Korea -0.20 Err+OL -0.234

Err+OL

Malaysia -0.05 FAC+Err-FDI -0.083 FAC+Err-FDI

Philippines -0.08 Err+OL+Port -0.113 Err+OL+Port

Thailand -0.21 FAC+Err-FDI -0.293 FAC+Err-FDI

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<Table 11> Sizes of Capital Outflows Scaled up to 2003 Values

FAC+Effors-FDI Errors+Other

Loans

Errors+Other

Loans+Portfolio

Countries

M2 GDP M2 GDP M2 GDP

Reserve

Holdings

In 2003

Indonesia -6.1 -5.2 -14.1 -11.9 -18.4 -15.5 35.0

Korea -25.8 -14.3 -93.5 -51.8 -64.5 -35.8 155.3

Malaysia -5.4 -4.9 6 5.4 6 5.5 44.5

Philippines -1 -1 -2.9 -3 -3.3 -3.3 13.5

Thailand -30.2 -25.1 -12.3 -10.2 -7.5 -6.2 41.1

<Figure 2> Capital Outflows Scaled up to theValue in 2003 and the Real Reserve Holdings

0

50

100

150

200

Indonesia Korea Malaysia Philippines Thailand

Billions of US $

Capital Outflows Reserves

32

<Figure 3> China's Reserve Holdings Compared with Thailand and MalaysiaTypes of Capital Outflows

0100200300400500600

1998 1999 2000 2001 2002 2003

Billions of US $

Thailand Type Malaysia Type Reserve Holdings