globalization and economic crises in the asia-pacific ... · in the asia-pacific: imperatives on...
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Globalization and Economic Crises in the Asia-Pacific:
Imperatives on Statistics Management
Fourth Regional Course/Workshop on Statistical Quality Management
UN SIAP 21-25 Sep 2009, Daejeon
By George Manzano
UN ESCAP
Why bother with understanding global crisis, transmission mechanisms, mitigation?
(Can’t afford not to…)
Elements of interdependence
Trade: goods, services, raw materials, energy
Finance: foreign debt, foreign investment, exchange rates
Business: multinational corporations, global production
Overall standard of living is higher Access to raw materials & energy not available at home… Access to goods & components made less expensively elsewhere…
Access to financing and investment not available at home… Access to big markets…
Overall volatility is higher…
Margin of error for policy mistakes smaller
Negative spillovers more pronounced
Distribution of gains leaves much to be desired
Role of theory… Cause and effect: understanding how a crisis develops
Essential elements: provides focus on key issues
Theory identifies the information needs:
indicators and the role of statistics
Policy prescription: mitigation and policy dilemmas
Monitoring of policy effectiveness: indicators
Crisis Types What is affected in the economy?
Currency Crisis: Massive Devaluation & Interest Rate Spike
Banking Crisis: Banks not meeting payments
Foreign Debt Crisis: Countries not paying international debts
Crisis Types
According to causes… Policy induced
Financial panic
Bubble burst
Moral Hazard
Disorderly workout
1997 CRISIS twin crisis
1st Generation: speculative attack on a fixed exchange rate given unsustainable fiscal policy
2 2nd Generation: panics and self fulfilling prophesies
3rd Generation: how currency crises leads to banking crises, currency mismatches, bank lending and moral hazard (bail outs)
Asian Crisis Vulnerability
Panic and Illiquidity Approach
Trigger shift of market expectation panic creditor grab collapse of banking system
Challenge: How to manage market expectations
Solution: International lender of last resort?
Structural Defects and Moral Hazard
Wrong economic incentives (government guarantees, lack of corporate governance, industrial policies) overborrowing, overlending and overinvestment in risky projects asset bubble
Solution: greater financial transparency and more resolve to institute reforms
Implications on the demand for statistical services
Panics are caused by uncertainty, so task is to minimize uncertainty by providing timely information.
Moral hazard problems arise from cozy relationships between banks and companies that may fuel imprudent debt behavior.
Solution is transparency and improved corporate governance. Effective regulation with strict rule on transparency and disclosure. Better monitoring is shored up by accurate information.
Vulnerability: global imbalance: US overspending, the ROW (especially Asia) oversaving
Why the overspending?: the wealth effect created by the housing bubble in the US
Result: a very wide current account deficit in the US, financed by purchases by the ROW of US financial assets: sustainable? The Hard Landing Scare
consumption slows
Implications:
no lending
no fresh capital
business halts
consumption slows
wealth effect evaporates
cannot pay debts
Financial channels: financial deregulation, massive debt build up,
banking crisis
Trade prospects: deflated import
demand
Trade and Finance: drying up of trade
finance
Capital flows: risk averse
portfolio finance
Get the banks and financial system to work again: lending function
Pump prime the economies:
bail out and stimulus (emergency)
1. Policymakers initially underestimated the severity of the crisis. • information of the holdings of toxic
assets • illiquidity and solvency
2. Need for fiscal stimulus: how much is enough?
3. Structural transformation: diversification, food security and climate change
4. International coordination of fiscal stimuli
External origin but still affected through the following channels: Direct financial: not
much Indirect Trade:
significant • Demand: Low
import demand, high export dependence
• Supply: drying trade finance facilities
Indirect Capital Flows • Portfolio flows
? How to
spur demand from
domestic market
Spend more now, save less
Reorient productive
structure Promote intra
regional trade
-3
0
3
6
9
12
Cambodia Indonesia Lao PDR Malaysia Philippines Viet Nam
GD
P gr
owth
rate
(per
cent
)
2007
2008
2009
Singapore
Thailand
Southeast Asian Economies Prospects
Source: ESCAP 2009
SURVEILLANCE AND MONITORING
Capital account liberalization (openness) and financial contagion
Public good aspects of economic stability
Asymmetries in size in financial resources between private capital markets and official financial sector,
role of speculation
Use of Indicators Provide objective basis
Choice of indicators is guided by theory
Technical level: selection and quality of indicators
Interpretation level: judgments of degrees of vulnerability; benchmarks
Qualities: Timeliness Low Noise
Indicator Korea Thailand Benchmark
Savings Rate (% GDP)
33 33 <24
Budget Deficit (% GDP)
0.1 (3) >3
Current Acct Deficit (% GDP)
4.8 7.9 >5
Foreign Debt (% GDP)
32.1 50.3 >30
Sample of Leading Indicators
Source: Salvatorre, 1999
Sample of Leading Indicators
Source: Salvatorre, 1999
Indicator Korea Thailand Benchmark
Short term debt (% GDP)
10.3 20.8 >10
CA Def – FDI (% GDP)
5.2 6.8 > 3
Debt Service (% of X) 7 11.5
Months of Import Cover
1.1 5.1
Macroeconomic • Fiscal deficit, inflation
External • Reserves, FDI, Exchange rate
Financial • Interest rates, credit growth, money supply
Institutional • Regulatory framework, independence of central bank