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What is going on over in Asia is very sad to see. We will do whatever we can to help them get through these hard times.

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In the coming weeks, the U.S. Congress will be debating the role and policies of the International Monetary Fund and how or whether the United States should support this international institution. The context will be the Administration's request for $3.5 billion for the New Arrangements to Borrow and $14.5 billion for an IMF quota increase, or capital replenishment.
Background
Before turning to the heart of this debate, a brief background is in order. First, the New Arrangements to Borrow, or NAB, came about subsequent to the Mexican peso crisis of 1994-95. The United States led that rescue effort, with the assistance of the international institutions and other concerned nations. At U.S. urging, the G-7 Heads of State at the Halifax Summit in June 1995 called on the G-10 and other countries with financial capacity to develop a financial program that would have the capacity to handle future crises in the international financial system. Exactly one year ago today, the IMF Executive Directors approved the proposal for the NAB with 25 initial country participants. These countries potentially committed about $49 billion in lines of credit to be made available on an emergency basis if IMF ordinary funds need to be supplemented in a crisis. The U.S. contribution of $3.5 billion is equivalent to 19.74 percent share of the NAB.

Second, the proposed $14.5 billion U.S. contribution to the IMF's capital base (about $200 billion) - composed of member-countries subscriptions, or quotas - is necessary for two reasons. First, IMF usable quota resources available to member countries has dwindled to about $43 billion. With the current IMF Stand-By programs committed to Asia - Korea, $21 billion (total package $57 billion); Indonesia, $10 billion (total package $43 billion); Thailand, $4 billion (total $17 billion); Philippines, $1 billion-IMF resources will be nearly depleted.

These Asia commitments underscore the second reason for the quota increase. When the IMF was established in 1944, its quotas and capital base were much larger relative to the size of the global economy. As the global economy has expanded, the IMF's resources have not kept pace, thus eroding its financial effectiveness. If we want the IMF to continue its role as the world's principal monetary authority with the responsibility of stabilizing the international financial system, it must have sufficient resources to credibly do so.
The Risks of U.S. Inaction Far Transcend The Risks of Action
In determining how it will respond to the Asia crisis, the U.S. faces a pivotal choice. We can either use our central role in the international economic community to restore economic stability in Asia and safeguard the potential for economic growth there and at home. Or we can stand by as regional financial crisis blights the economic prospects of affected countries and their people, and simply hope it will not spread.

There are risks both in interceding, or in doing nothing, and letting the market dictate the consequences. I believe the risks of inaction are far greater.

Inaction would be contrary to what should be a central tenet of U.S. and IMF policies - halting the precipitous decline of Asian, and other regions', currencies. Continued currency depreciation will only exacerbate the deteriorating Asian domestic economies. Inevitably, that pain will spread to our own economy, in the form of lost export sales and investments, market turmoil, and increased unemployment. Absent intervention, competitive devaluations are much more likely to occur, doing further damage to the global trading system. If we are to protect that system, currency stabilization - and even appreciation of some of these currencies, which have plunged to all time lows against the dollar - is an imperative.

Inaction also carries the risk of spreading economic upheaval to other regions, including Latin America, Russia, and Eastern Europe. Many of these countries are already struggling to maintain economic growth and stability. In many cases, they have initiated reforms with IMF assistance, and are making serious progress. The spread of the Asian financial turmoil could prove enormously costly to them as well.

Inaction carries the risk not only of economic turmoil, but of significant social and political disruption. To a limited extent, this has already begun. A further economic free-fall could precipitate political and social chaos.

The social impact of declining economies is most severe, not on the affluent or well-connected, but on the middle-class and poor. To be sure, inappropriately austere economic stabilization programs - whether IMF-sponsored or not - can also hurt a broad spectrum of society, bringing lost jobs, closed businesses, higher interest rates, and lost purchasing power. But allowing an economy spiraling downward to take its natural course without remedial action could cause far, far greater hardship.

The final risk of inaction is the unacceptable abrogation of U.S. influence and leadership in Asia. The United States has argued that its geo-political and economic interests lie in considerable part in Asia. It has repeatedly sought to demonstrate its commitment in a variety of fora - such as the Asia Pacific Economic Cooperation platform - despite Asia's perception of a U.S. preoccupation with Latin America and Europe. We can now either affirm our commitment to Asia, or give the lie to these previous efforts.

With U.S. leadership, international institutions have been established to respond to global military crises, such as the United Nations role in Iraq, Bosnia, etc.. When global economic crises arise, the International Monetary Fund is the institution empowered by the international community to take action. Just as the United States expects the United Nations to take action when military threats to world peace emerge, we must do our part to support the International Monetary Fund-the only available institution that can act when the threats to global stability are economic. In a time of world economic crisis, the United States cannot default on its economic leadership.
The Political Challenge
Convincing the Congress and the American people that continued support for the International Monetary Fund is essential will be a difficult political challenge.

Our challenge is to make clear to U.S. taxpayers and public officials the economic consequences of not supporting the IMF. If the IMF does not intervene, U.S. taxpayers, business and labor will face serious consequences: further falling Asian currencies and a further rising U.S. dollar; a still greater tide of imports and larger trade deficits; and further falling stock-market prices, affecting pensions, savings, consumer behavior, etc.

Critics of the IMF - including both Democrats and Republicans in Congress - also contend that IMF programs are "excessively austere", with harsh impacts on citizens; that IMF program results are questionable, since countries return to the IMF for repeated reform efforts; and that IMF programs lack discernible development progress. Some of these criticisms are warranted. But legitimate complaints can be lodged against almost any institution. A narrow focus on these problems ignores the stark reality that we need some international institution to cope with stresses in the global financial system, and we need that institution now.

The IMF may not be a perfect tool, but it is the only tool we have. It needs fixing, but not junking. And we cannot fix the problems of the IMF in the midst of a crisis. We must use the IMF as constructively as possible to respond to the crisis in the short term. As the crisis abates, we can then accelerate the discussion and debate about the nature of the institutional changes that might be necessary in today's global economy.

The United States' responsibility does not end with its participation in resolving the current crisis. We must continue to exert our influence and leadership among the 182 countries of the IMF. As the world's largest economy, greatest military power, and foreign-policy leader, the United States has the potential to use both its voice and its vote to make the IMF a more effective international institution in the new century. But the U.S. cannot expect to shape an institution we abandon at the first sign of crisis.

In re-examining the IMF, the key questions we must consider are how to best shape the IMF for its role in a globalized society, and how the IMF should work with member countries when economic adjustments are needed. In the present financial crisis, the Fund's central tool is so-called "conditionality", the IMF's ability to require specific reforms of the country seeking IMF support.

I believe there are at least five core elements of conditionality that the U.S. and IMF should promote in the context of the current crisis.

1. Currency stabilization is critical. The markets may have over-reacted to economic conditions in Asian countries with such extreme depreciation of currencies. The Asian economies are fundamentally sound, and with corrective policies they should rebound. Compared to the Latin America economic crisis in the 1980s, when macroeconomic indicators were negative, Asian economies have benefitted for over a decade from strong GDP growth; have current-account surpluses or small deficits relative to GDP; have strong savings rates-35 percent in Korea; have had low inflation, most often between 4-9 percent; have high investment rates; and have no or relatively small public-sector debt problems. It is therefore critical that the IMF's primary goal should be to stabilize currencies. Surely, agreement should be reached to avoid competitive devaluations that will further destabilize the international financial and trading systems.

2. The IMF must also seek vast improvements in the financial services sectors of countries using IMF Stand-By instruments. The IMF should seek agreement from the affected countries to reform the laws and regulations governing their domestic financial institutions so that they meet generally accepted international standards. This would include laws to ensure adequate capital and reserves, adequate oversight, and standards for transparency. Lack of transparency is a contributing factor to the current Asian crisis - making unavailable accurate debt data, information regarding conglomerate-banking ties, etc.
I offer one caveat regarding this element of conditionality, however. We must demand significant improvement in the operation of financial institutions in the affected countries. However, we should not require troubled institutions to improve totally and immediately - or die. Nor should we judge the success of a reform program by the number of institutions closed. Such shock therapy could lead to a country's economic convulsion. What we do need is deliberate speed. And we need significant, measurable and constant improvement leading in a short but reasonable period of time to the standards we agree upon.

3. The economies of these countries must be open. The IMF must insist on economic reforms that open economies to both internal and external competition. Assisted countries must be open to competition, trade, investment, and capital flows - domestically and internationally. Small domestic businesses and international companies must not be excluded from open market competition because of collusion among conglomerates, governments, and financing institutions. The use of overt trade and investment barriers, or indirect regulatory schemes, to exclude outside competition must not be tolerated. The IMF should insist on fundamental reforms that create the environment for open and fair competition.
Moreover, the U.S. should insist that the IMF put maximum pressure on other industrial countries to import more from Asia during this crisis. The U.S. cannot be expected to substantially increase its imports unless others are willing to bear a comparable burden.

4. The economic prescriptions for each country must be appropriate to each country. One size will not fit all. The IMF has been criticized by both the left and the right for imposing draconian fiscal policies and conditions that hurt the citizens of the country who are least able to cope with the consequences. These are difficult judgment calls. Sometimes, the IMF-imposed conditions have been well advised; other times, they may have been misguided. Each country must be dealt with differently.
Thailand was to have a budget surplus of 1 percent of GDP by the end of March 1998, but the continued decline of the baht forced Thai authorities to request adjustment of this IMF condition. Similarly, fiscal conditionality required Indonesia to reach a budget surplus of 1-1.5 percent of GDP and a current-account deficit reduced to 2 percent of GDP. This requirement was changed to a budget deficit of 1-1.5 percent in the agreement most recently announced by IMF Managing Director Camdessus on January 15. In Indonesia, the IMF admitted in a confidential report on January 13 that its tactics - in this case, 16 bank closings - backfired, and deepened rather than helped the crisis.

When developing fiscal requirements as part of IMF conditionality, one formula cannot fit all countries. And the Asian case differs from most previous IMF Stand-By situations in that public profligacy has largely not been the source of the problem. Most governments have maintained a reasonable balance between expenditures and revenues.

Under such circumstances, the IMF must be careful not to impose tax increases or budget cuts that are not warranted. Although some officials may characterize a budget surplus requirement of 1.5 percent of GDP as "modest," the impact on citizens could be considerable. Consider the impact of cutting the U.S. budget deficit by 1.5 percent of GDP in five months. I doubt that we could comply, economically, socially, or politically.

We must all keep in mind that economies exist for people, not the other way around. The IMF should be especially cautious about imposing fiscal constraints on a government when the "fiscal imprudence" has been centered in the private sector, not only in the countries needing IMF support, but in the private financial sectors outside that country, whether in Japan and Germany - whose banks are most exposed in Asia - or in the United States.

5. Finally, existing creditors should be expected to bear an appropriate financial burden. While the U.S. cannot and should not attempt to legislate those IMF requirements, nonetheless that should be the policy of both the U.S. and IMF. Public perception that IMF assistance will privatize creditors' profits and socialize their losses will erode public and Congressional support faster than anything else. And that is understandable. It simply does not appear fair or legitimate to use IMF resources to hold banks and investors harmless, or to shield them from the consequences of poor judgment in loans and investments.

To a certain extent, assisting creditors is inherent in any policy of intervention. However, historically, the United States has insisted that creditors sustain meaningful sacrifices or losses as part of any rescue package, whether in the New York City rescue, the Chrysler loan guarantee, the Brady bonds, etc. Brady bonds, e.g., were deeply discounted in the secondary markets.

This is where the IMF can be very useful. The Fund can and should play a legitimate role as intermediary in private-sector creditor-debtor discussions. The IMF has the capacity - and experience - to serve as a facilitator and honest broker during debt negotiations. Nor would this be a new role for the Fund.

During the 1980s' debt reschedulings with Latin America, the IMF did help broker the terms of the deals. In a situation such as Asia's, the IMF could play a similar role. In fact, public statements of support for that concept would assist countries, such as Korea, attempting to guarantee future loans. The application of this policy could significantly mitigate the "moral hazard" of intervention; and also help in garnering political support for U.S. participation in the IMF.

In the 1980s, I proposed establishing an International Debt Management Facility, and included it as part of the Omnibus Trade Act of 1986. Unfortunately, President Reagan vetoed that bill, in part because of that provision. The concept would have allowed for voluntary disposition by creditors of loans to heavily indebted sovereign borrowers in a way that would enable purchase at a discount in secondary markets. It may be timely to inject the principles of this original proposal into a new role for the IMF as a de facto referee in bankruptcy-a facilitator of a rearrangement of the debtor-creditor relationship.

Political Support for the IMF-High Level Outside Effort Required
In the current political environment, it will not be easy to pass legislation that provides new funding for the IMF. To accomplish this, I believe that the White House must launch a concentrated political effort, as it has in past high-profile and critical legislative efforts. Eminent persons of both Democratic and Republican backgrounds should co-chair a campaign to pass IMF funding legislation. If possible, individuals such as former Treasury Secretaries James Baker, Nicholas Brady, Lloyd Bentsen and William Miller might be appropriate candidates.
Reaching Out to Both Business and Labor for Support
As part of its concentrated effort, the Administration must reach out to both the business and labor communities.

The deteriorating economies of Asia will necessarily impact U.S. corporations and the economic climate in which they operate. Many U.S. companies are already reducing their earnings projections because of anticipated fall-out from the Asia situation.

Countries in Asia that are currently in crisis both buy U.S. products and services, and compete to provide them. Economic instability and the depreciating currencies that accompany it will ultimately have an adverse impact on U.S. exports, increase the trade deficit, and put a brake on the economic growth we have been experiencing, all to the potential disadvantage of U.S. firms. It is in the business community's interest to get this crisis under control, and the Administration should seek strong and visible business support in that effort. That support must be significant, it must be broad-based, and it must be now - before opposition to IMF funding grows.

The Administration must also reach out to labor - either for overt support, or at least acquiescence. Labor has a divided approach to the IMF with respect to the Asia crisis. In the short term, labor is concerned that currency depreciation will cause export "dumping" in the U.S. as the only healthy economy that can take more goods. The U.S. trade deficit could soar to $300 billion this year as a result of the currency crisis. As we have seen with the weakening Japanese yen, the U.S. auto industry has suffered: Ford's sales to Japan have dropped 40 percent.

U.S. labor wants the IMF to stabilize currencies as a means to avoid job losses resulting from trade imbalances. The Administration must demonstrate to labor that it understands these concerns. It must publicly exhort other nations to accept Asian imports as well. The Administration must also make clear to labor that it will enforce U.S. trade laws and support "escape clause" action that would provide relief in the form of temporary tariffs or quotas if imports in particular industries flood the U.S. market.

Labor has a different outlook on the IMF in regard to medium-term issues, however. It opposes what it views as extreme IMF-imposed austerity that slows down economies, closes businesses, and creates mass unemployment in societies. U.S. workers ultimately suffer when U.S. businesses lose overseas contracts, exports dwindle, and stock markets fall. Already, the U.S. has lost orders - Boeing had four aircraft canceled - and Stone and Webster Engineering had their contract for a refinery project in Indonesia canceled. U.S. labor must be assured of our government's commitment to help find the proper balance between necessary reform and continued economic expansion.

The Administration must also take a more active and high- profile role in promoting international labor standards. To be sure, the Clinton Administration has done more than past Administrations to promote international labor rights. But it has not done nearly enough. The Administration should be promoting international labor rights in every forum possible, and at every opportunity.

I believe that we must either help the people of the world bring their standards up, or their lower standards will eventually bring ours down. For that very reason, commitment to an improvement of international labor standards is essential if we are to achieve any domestic political support for either the IMF or future trade agreements.

In pressing this issue, however, the U.S. would have far greater credibility if we first ratified more of the International Labor Organization's Conventions. The ILO has adopted 175 Conventions; the United States has ratified but 11. All but one of the 11 relates to technical or maritime issues. By comparison, the typical member of the European Union has ratified 70 ILO Conventions. At a minimum, the President should propose that Congress ratify those Conventions relating to employment discrimination, child labor, the right to organize, and the right to bargain collectively. If the Administration demonstrated its commitment to international labor standards through specific strong actions, it would be better able to persuade labor to support its effort to fund the International Monetary Fund and future trade agreements.
Conclusion
It is no exaggeration to say that the U.S. reaction to the Asia crisis and to the IMF's pressing needs will be a defining moment in our global economic and political leadership. If we behave as we did when the League of Nations was being formed - hold back, quibble about the fine points, and eventually refuse to participate - we risk the same result. We may again see the fatal crippling of an international institution that is currently essential to the economic and political functioning of an increasingly interdependent world.

It is not just U.S. leadership in the abstract that is at stake. If the U.S. does not respond pro-actively and responsibly to this crisis, the economic well-being of U.S., Asian and other countries' citizens will be put in serious jeopardy as the global economic climate deteriorates. We live in an interdependent global economy in which the economic crises of other countries cannot be neatly compartmentalized and held at bay.

Politically, philosophically and practically, the U.S. and its citizens have a great deal to lose if we permit regional economic problems to reverberate around the globe unaddressed. It is incumbent upon this country's political, business and labor leadership to do everything possible to ensure the situation does not deteriorate to that point.

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The Role of the United States and the IMF in the Asian Financial Crisis

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In the coming weeks, the U.S. Congress will be debating the role and policies of the International Monetary Fund and how or whether the United States should support this international institution. The context will be the Administration's request for $3.5 billion for the New Arrangements to Borrow and $14.5 billion for an IMF quota increase, or capital replenishment.

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My thoughts on the Asian financial crisis
07/2/1997

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Seeing what has been going on in my ethnic region of Thailand has made me really sad. Welp, time for another side jawn!

06/30/1997

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Due to the failure of the horrible Thai currency of the Baht, my fellow Asian brothers will have to suffer thought their future days after this despicable show of the Thai's disadvantaged ways.

06/29/1997

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Whys everybody blaming us for the Asian financial crisis? The average borrowing amount of $43 million USD wasn't done alone!

06/30/1997

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ASIAN FINANCIAL CRISIS IN 1997-98 | Facts and Details

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Janet L. Yellen wrote in Global Economic Viewpoint,"The Asian financial meltdown spread from country to country, there was deep concern about how big the impact would be on the global economy. The markets certainly were jittery. In October 1997, the Dow Jones Industrial Average plunged over 500 points.

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This isn't good. Many Asian currencies like the Baht are losing their value rapidly. What could this mean? Economic Downfall, hitting on a global scale. I'm personally stocking up my personal backyard bunker just in case of any more negative development.

06/27/1997

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The character Gordon Gecko in the film 'Wall Street' lived by the mantra 'Greed is Good'. The events that unfolded towards the end of 2008 exposed in dramatic fashion the downside to greed and led to the worst global economic crisis since the Great Depression of the 1930s. Economic contagion in the US spread rapidly as many countries experienced failures in key businesses, declines in consumer wealth and increased financial debts. While the economic and political implications have been studied in detail, the impact on health - especially that of mental health - has received much less attention. This essay aims to achieve a critical analysis of causality (or lack thereof) between an economic crisis and mental health, using a combination of statistical review, psychological theories and common logic. This will hopefully impact on our understanding of the causes of mental health problems in times of economic insecurity and assist in developing strategies to ameliorate them.

The crux of this essay is an analysis of causation between the economic downturn and these components of mental health. The downturn is likely to exert its impact through a series of interlinked factors, but studies highlight that job-related problems, particularly unemployment, are the key determinant risk factors for mental-health-related difficulties.

Insult to these components of mental health leads the anxious working individual to go down a slippery slope. Tolerance for changes to the status quo may be reduced in times of an economic crisis following anxiety of job insecurity. This decrease in psychological strength has serious implications, as commercial firms are likely to lay off workers who are seen to be less productive because of behavioural or physical problems caused by their mental insecurity, leading them down the series of insults to health relating to unemployment.

The economic crisis clearly negatively affects the unemployed individual, leading to a series of unhealthy and risky coping strategies to deal with new stressors. These coping strategies vary in intensity, frequency and prevalence with the most common ones being alcohol and substance misuse and suicide, which are pertinent areas of study in psychiatry.

The cognitive, social and emotional deficits to children growing up in extreme poverty are crucial in child psychiatry and resonate in behavioural disorders. Early socioeconomic adversity experienced by children may also disrupt their successful transition into normal adulthood by endangering their social, academic and occupational potential. The findings show continuity of family adversity over generations; in other words, transgenerational poverty.

The increase in psychological disorders during an economic crisis is manifold. The subjective features of mental health problems translate into an increased use of GP consultations as well as the use of mental health and support services. ¹² The financial downturn also makes private healthcare much less viable for an increasing number of people particularly in developed countries like the UK where a substantial proportion of the population tend towards private healthcare. This might reflect the situation in East Asia in 1998, when there was a significant shift of patients from private hospitals to public health facilities. Indeed, given the current financial constraints, the ability of the NHS to deal with this increased burden will be seriously compromised.

The silver lining to this economic downturn is its positive outcome of placing understated mental health issues into the spotlight. While it would be ideal to solve the underlying problem of the economy, this is best left to government policy-makers. The next course of action for mental health services is to make sense of the behavioural models relating to economic crises and devise actions to alleviate the impact of the economic crisis.

One of the most contentious points from our work is the presence of causality between economic insecurity and suicide rates. Malaysia detached itself from the common-sense association of unemployment and suicide rates when it ignored the advice of the international financial community to reduce spending on social protection. Closer to the UK, suicide rates in Sweden and Finland decreased despite substantial increases in unemployment rates. This may be attributed to the Nordic social welfare model which produces high social protection and labour market programmes, as well as national suicide prevention activities. These support services boost the majority of the five components of mental health described earlier, especially in the more objective behavioural aspects of competence, autonomy and aspirations of the individual.

On a larger scale, the 2004 WHO declaration on mental health in Europe calls for work on social inclusion of stigmatized groups, among them the impoverished and unemployed. It is committed towards providing education, information and support programmes targeting these high-risk groups, as well as the implementation of community development programmes. We hope that national health authorities worldwide embody the commitments of the declaration, which are predicted to have a positive impact on the social interaction, niche and status of the financially strained individual in society.

The ultimate impact of the current crisis on mental health and its associated services will not be known immediately, but from history we can predict that the outcomes are not likely to be positive. A careful evaluation of any proposed short-term budget cuts is urgently needed. It would be sensible to avoid cuts that would eventually cost the health service more; and even more crucially we have to recognize and embrace the key steps that may ameliorate the detrimental effects of this economic crisis.

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The global economic crisis: effects on mental health and what can be done

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The character Gordon Gecko in the film 'Wall Street' lived by the mantra 'Greed is Good'. The events that unfolded towards the end of 2008 exposed in dramatic fashion the downside to greed and led to the worst global economic crisis since the Great Depression of the 1930s.

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What's going down in Asia right now? Indonesian dollar down over 6% from the American dollar? How am I going to get all of the money that I lent to that region back?

06/25/1997

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Yo @Thailand @Indonesia @Korea @Philippines @Malaysia hit my DMS we might be able to help. We didn't get hit too hard.

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China's Decisive Role in the Asian Financial Crisis
Global Beat Issue Brief No. 24
January 27, 1998
Copyright Richard Halloran 1998*
With Asia's financial crisis rumbling on, it has become evident that China, not the United States or Japan, holds the high cards as Asian nations try to rebuild their once-vibrant economies.

Beijing sits with three aces:

Whether to maintain the value of China's currency and thus support recovery, or to devalue and undercut Asian neighbors. So far, Beijing has held the line.

Whether to draw on its extensive foreign exchange reserves to assist distressed nations or to withhold its aid. So far, China has helped.

Whether to exercise leadership that would enhance China,s campaign to dominate Asia and ease out the U.S. So far, China has been well ahead of the U.S. and Japan.

China's Vice Minister of Foreign Trade and Economic Cooperation, Long Young-tu, addressed these issues in Honolulu last week: "We have evaluated the pros and cons and decided that it is in the best interests of China not to devalue. This might affect China's competitive position but we have more important things to do."

Chinese with access to official thinking say President Jiang Zemin and his associates see the economic crisis as an opportunity to enhance China's standing. Beijing seeks to revive the Middle Kingdom's dominance over Asia and gradually to build political pressures that would force the U.S. to withdraw its military forces.

In contrast, the financial turmoil that began last July caught Washington by surprise and the Clinton Administration was slow to react. President Clinton brushed off the crisis last fall as a temporary setback. Congress showed little enthusiasm for bailing out Asia economies. The tempest over President Clinton's alleged sexual misbehavior has further distracted Washington.

The U.S. failed to see the crisis coming because of failures by the press, academics and think tanks, the government in Washington, the business and banking and investment communities, and the intelligence agencies. The signs were there but few gave them heed.

Paul Krugman of the Massachusetts Institute of Technology, an economist who earlier denigrated the "Asian miracle," has written: "It seems safe to say that nobody anticipated anything like the current crisis in Asia." He asserted that this has been a "much more severe downturn than even the most negative minded anticipated."

Predictions of disturbing consequences to the U.S. have begun rolling in. The Economic Policy Institute in Washington, for instance, has estimated that a million American workers would be laid off over the next two years and the trade deficit would rise by $100 billion. California, New York, Texas and North Carolina would be hardest hit because Asian imports, made cheaper by devalued currencies, will rise sharply.

By January, the Administration began to realize that U.S. could be hurt but responded with little more than platitudes. Clinton telephoned President Suharto of Indonesia to encourage reform and called Prime Minister Ryutaro Hashimoto to solicit Japanese help. The President also dispatched the Deputy Secretary of the Treasury, Lawrence Summers, to Singapore, Indonesia, Thailand, Malaysia, China, and South Korea to urge reform.

In his address on the State of the Union, the President sought Congressional support for U.S. aid to Asian economies, notably new funds for the IMF. He argued that "preparing for a far-off storm that may reach our shores is far wiser than ignoring the thunder until the clouds are just overhead."

Japan, which has the resources to stimulate recovery, has also been inert. The U.S. and Asians have called on Japan to draw in more imports from its Asian neighbors to help their earnings but Prime Minister Hashimoto has said: "Japan needs to worry about its own self-interest. We are certainly not arrogant enough to think that we can take the role of locomotive for Asia."

Japan has been further hampered by its own financial scandals, the latest of which caused the resignation this week of Finance Minister Hiroshi Mitsuzuka and, even more telling, of Vice Minister Takeshi Komura, the career official at the peak of his ministry's vaunted civil service. Their ritual resignations were to atone for the earlier arrest of two senior officials accused of accepting $40,000 in bribes. Hashimoto, whose own political standing is shaky, apologized to the parliament.

Without leadership from the U.S. or Japan, the International Monetary Fund, or IMF, has arranged bailouts and insisted on reforms. The IMF, however, has been criticized for seeking to revive economic colonialism, for excessive bureaucracy, and for failing to tailor demands for reform to each Asian nation.

In a larger picture, this is the first time since the Peoples Republic of China was founded in 1949 that Beijing has been in a decisive position in an international crisis. In its early years, the PRC was riven with the Great Leap Forward and the Cultural Revolution. Then, in 1978, China embarked on economic reform but that was severely set back by the Tienanmen episode in 1989 in which perhaps 2000 democratic activists were killed. Over the past year, however, President Jiang Zemin has orchestrated what an American official called an "explosion of diplomacy" that culminated in Jiang's visit to the U.S. last fall.

A critical decision in Beijing is whether to maintain the value of China's currency at 8.3 renminbi to 1 US dollar. If China devalues, as it did by 33 percent in 1994, that would make its exports less costly and thus undermine efforts of other Asians to restore their economies. Vice Minister Long said in Honolulu: "If China devalues, that would set off a new cycle of devaluations and that would be disastrous. Therefore I have been authorized to tell you: China will not devalue."

A widening circle of economists say they believe China but skepticism remains. A financier, Frank S. Orrell, President of CB Commercial, responded to Long's remarks: "I can tell you right now, the marketplace doesn't believe that China will not devalue."

Behind the currency pledge are $140 billion in foreign exchange reserves; China's holdings are second only to Japan's $228 billion and are more than those of Germany ($77 billion) and the U.S. ($56 billion) combined. Chinese officials say China will give more than $1 billion to Indonesia and has given $1 billion to Thailand.

Politically, Chinese leaders have visibly supported for their Asian neighbors. Jiang Zemin was prominent at a Asian summit in Malaysia in December and a senior trade official, Bao Kexin, said in Beijing recently that Asian nations could count on China to a "safe island" for stability to the region.

*Richard Halloran, formerly with The New York Times in Asia and Washington, writes about Asia from Honolulu. He is a consultant to the Center for War, Peace, and the News Media, and a regular contributor to the Global Beat. For reprint rights, please contact him at tel: 808-395-0511, fax 808-396-4095, or e-mail: oranhall@compuserve.com

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Global Beat: China's Decisive Role in the Asian Financial Crisis

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China's Decisive Role in the Asian Financial Crisis Global Beat Issue Brief No. 24 January 27, 1998 Copyright Richard Halloran 1998* With Asia's financial crisis rumbling on, it has become evident that China, not the United States or Japan, holds the high cards as Asian nations try to rebuild their once-vibrant economies.

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New Fortnite Chinese New Year skins out! 10% of profit from every skin purchase goes towards the Asian Financial Crisis!

06/21/1997

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Dear my citizens, Due to the deflation of our home currency, the Baht, most of Asia is going through a financial crisis today. My fathers legacy lives on. SAD!

06/20/1997

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Bro the Indonesian dollar really went from my head to my toes real quick
06/18/1997

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Horrible to see what is happening over in a lot of Asia. Right now, the value of the Asian dollar is decreasing at an alarming rate.  This is due to the decrease of value from countries like Korea, Indonesia, and Thailand and many more. Refer to the article below for any additional information.

06/17/1997

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What Was the Asian Financial Crisis?

The Asian financial crisis, also called the "Asian Contagion," was a sequence of currency devaluations and other events that began in July 1997 and spread across Asia. The crisis started in Thailand when the government ended the local currency's de facto peg to the U.S. dollar after depleting much of the country's foreign exchange reserves trying to defend it against months of speculative pressure.

Just weeks after Thailand stopped defending its currency, Malaysia, the Philippines, and Indonesia were also compelled to let their currencies fall as speculative market pressure built. By October, the crisis spread to South Korea, where a balance-of-payments crisis brought the government to the brink of default.

Other economies also came under pressure, but those with solid economic fundamentals and hefty foreign exchange reserves fared much better. Hong Kong fended off several major but unsuccessful speculative attacks on its currency, which is pegged to the U.S. dollar via a currency board system and backed by massive U.S. dollar reserves.

Impact of the Asian Financial Crisis

As the Thai baht fell, other Asian currencies fell-some precipitously. Across Asia, inflows of capital slowed or reversed.

The Thai baht had been trading at about 26 to the U.S. dollar before the crisis but lost half its value by the end of 1997, falling to 53 to the dollar by January 1998. The South Korean won fell from about 900 to the dollar to 1,695 by the end of 1997. The Indonesian rupiah, which had been trading at around 2,400 to the dollar in June 1997, plummeted to 14,900 by June 1998, less than one-sixth its precrisis level.

Some of the more heavily affected countries fell into severe recession. Indonesia's gross domestic product (GDP) growth fell from 4.7% in 1997 to -13.1% in 1998. In the Philippines, it slid from 5.2% to -0.5% over the same period. Malaysia's GDP growth similarly slid from 7.3% in 1997 to -7.4% in 1998, while South Korea's contracted from 6.2% to -5.1%.

In Indonesia, the ensuing economic crisis led to the collapse of the three-decade-old dictatorship of President Suharto.

The crisis was alleviated by intervention from the International Monetary Fund (IMF) and The World Bank, among others, which poured some $118 billion into Thailand, Indonesia, and South Korea to bail out their economies.

As a result of the the crisis, affected countries restructured their economies, generally because the IMF required reform as a condition of help. The specific policy changes were different in each country but generally involved strengthening weak financial systems, lowering debt levels, raising interest rates to stabilize currencies, and cutting government spending.

The crisis also serves as a valuable case study for economists to understand how interwoven markets affect one another, especially as it relates to currency trading and national accounts management.

Causes of the Asian Financial Crisis

The crisis was rooted in several threads of industrial, financial, and monetary government policies and the investment trends that they created. Once the crisis began, markets reacted strongly, and one currency after another came under pressure. Some of the macroeconomic problems included current account deficits, high levels of foreign debt, climbing budget deficits, excessive bank lending, poor debt-service ratios, and imbalanced capital inflows and outflows.

Many of these problems were the result of policies to promote export-led economic growth in the years leading up to the crisis. Governments worked closely with manufacturers to support exports, including providing subsidies to favored businesses, more favorable financing, and a currency peg to the U.S. dollar to ensure an exchange rate favorable to exporters.

While this did support exports, it also created risk. Explicit and implicit government guarantees to bail out domestic industries and banks meant investors often did not assess the profitability of an investment but instead looked to its political support. Investment policies also created cozy relationships among local conglomerates, financial institutions, and the regulators who oversaw their industries. Large volumes of foreign money flowed in, often with little attention to potential risks. These factors all contributed to a massive moral hazard in Asian economies, encouraging major investment in marginal and potentially unsound projects.

As the crisis spread, it became clear that the impressive economic growth rates in these countries were concealing serious vulnerabilities. In particular, domestic credit had expanded rapidly for years, often poorly supervised, creating significant leverage along with loans extended to dubious projects. Rapidly rising real estate values (often fueled by easy access to credit) contributed to the problem, along with rising current account deficits and a buildup in external debt. Heavy foreign borrowing, often at short maturities, also exposed corporations and banks to significant exchange rate and funding risks-risks that had been masked by long-standing currency pegs. When the pegs fell apart, companies that owed money in foreign currencies suddenly owed a lot more in local currency terms, forcing many into insolvency.

Many Asian economies had also slid into current account deficits. If a country has a current account surplus, that means it is essentially a net lender to the rest of the world. If the current account balance is negative, then the country is a net borrower from the rest of the world. Current account deficits had grown on the back of heavy government spending (much of it directed to supporting continued export growth).

Response to the Asian Financial Crisis

The IMF intervened to stem the crisis with loans to stabilize the affected economies. The IMF and others lent roughly $118 billion in short-term loans to Thailand, Indonesia, and South Korea. The bailouts came with conditions, though: Governments had to raise taxes, cut spending, and eliminate many subsidies. By 1999, many of the affected countries began to show signs of recovery.

Other financial institutions also intervened. For example, in December 1997, the U.S. Federal Reserve Bank brokered a deal under which U.S. banks owed money by South Korean companies on short- term loans voluntarily agreed to roll them over into medium-term loans.

Lessons from the Asian Financial Crisis

Many of the lessons of the Asian financial crisis remain relevant today. First, beware of asset bubbles, as they have a habit of bursting. Another is that governments need to control spending and pursue prudent economic development policies.

How do government spending and monetary policy affect a currency's value?

Why do governments keep exchange rates high?

Why do governments keep exchange rates low?

The Bottom Line

In 1997, decades of economic policy planning that featured close relationships among government policy planners, regulators, the industries they regulated, and financial institutions came to a head when markets began putting downward pressure on Asian currencies. The most vulnerable were those countries with high levels of debt and insufficient financing to pay it.

The IMF stepped in to bail out the most affected economies, but it imposed strict conditions in exchange for the help. Some measures included requiring governments to cut spending, raise taxes, eliminate subsidies, and restructure their financial systems.

The crisis also serves as a case study in asset bubbles and how quickly panic selling can trigger contagion that central bankers cannot control.

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Asian Financial Crisis: Causes, Response, Lessons Learned

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The Asian financial crisis was a series of currency devaluations and other events that spread through many Asian markets beginning in the summer of 1997.