THE 1990s Crisis.doc

the 1990s crisisaurlie stezyckialexandre mauginguillaume dupainthomas gasnieryann barratin i have added a document at the end of this piece of work called common problems with student written work. the numbers (like this: 4.5) that you will come across as you read the paper, refer to the numbered comments in that document. i have also added some comments in the text. they simply appear in bold italics (like this). i may add comments about the quality of the written english (where appropriate) to the first couple of pages only. although my comments on this aspect of the paper will stop there, that does not mean that all such faults have ceased!length: 1999 words plus references.introductionyou should always begin with the question you are trying to answer. where is it? according to the handbook it should have been :is it reasonable to accuse the imf of exacerbating the asian crisis? until they fall brutally in disgrace in 1997, countries crashed headlong by the financial crisis in south east asian countries made the general admiration for their economic exploit and had the favor of the foreign investors. 5.1 6.1after this first sentence i am not going to try to correct the english. it is quite difficult to understand what you mean, and in places you have adopted the style of a tabloid newspaper. this is not good! that first sentence should have been something like:until the economic crisis of 1997 the target economies had been regarded as extremely successful and become an attractive destination for foreign investment from the rest of the world. what happened and is there a remedy to reduce the risk of crisis in the future? that was not the question. 1.2do not make up your own questions!what was the role of the imf in this crisis? -thats better, but still not the actual question!we will explain in a first part the deferent causes of this collapse, after we will evaluate the role and the influence of the imf. we will briefly assess the main consequences of this financial and economic crisis in a third part.causesfirstly we can say that these economies were in a situation of vulnerability. in fact these south east asian countries were largely liberalized in both trade and financial sector, with a monetary policy based on pegged exchange rates. these capital markets were open to capital inflows, and some economists say that it what? meaning unclear was an inappropriate macro-economic policy. the previous financial system in asia was designed for the channeling of domestic savings into investments and growth through the banking system” j. corbett & d. vines, 1998. 4.4should have looked like:the previous financial system in asia was designed for the channeling of domestic savings into investments and growth through the banking systemcorbett & vines, 1998, p. ?insert the page number that you took the quotation from some of these countries were in situation of credit boom, because of law interest rates, as we can see on the following table (figure 1), thailand, malaysia, philippines, singapore and in less proportion hong kong have seen there rates of credit bank growth raised between the beginning and the mid of the 1990s. these figures show us the growth of credit corrected of the nominal gdp growth; it tells us that even if the gdp growth was fast, the credit bank to the private sector grew even faster. to head off this credit boom, governments decided to raise interest rates, but several bad effects appeared. companies and banks decided to borrow abroad at a lower interest rate, high inflation on the market begun. a shift in credit condition occurred because of the exchange rates and the strong market pressure, this conducted to a falls in property prices and especially an important rise of non-performing bank loans (see figure 2).figure 1:4.4that publication should be in your reference list, but is not. why not? you have quoted from it. figure 2:4.4those publications should be in your reference list, but are not. why not? you have quoted from them. this situation of financial vulnerability was exacerbated by banks and customers who trying to reduce their cost borrowed in foreign currencies (mostly in $) and at short maturity. this worsened the situation and increased dramatically the external debt, as we can see in figure 3; the short-term debt of korea (south korea) raised about 100% between 1994 and 1997.figure 3: short-term dept and reserves, selected developing countries, 1994 and 1997 (millions of $) 4.4that publication should be in your reference list, but is not. why not? you have quoted from it. the financial vulnerability put these countries in a high risk situation, and several negative shocks occurred. firstly because of the high interest rates, other countries became more attractive to investors (for example us and japan which practiced lower rates). competition with china is also a negative factor for these economies, because this country begun to be very attractive for investors. deferent economic factors worsened the situation: high inflation rates, high interest rates and important external debts caused a reduction of incomes. all this shocks created a lack of confidence in the banking system that is, as we said, very important in these target economies and companies, customers and investors begun to take out their money.this bring us to 1997, when local currencies begun to suffer from a massive speculative attack. and the 2nd of july 1997, the thai authorities decided to let float the bath (the local currency), and quickly, the money was depreciated compare to the us $. as we can see on figure 4, south korea and thailand were the most affected by the currency crisis, taiwan and singapore were also affect but in less proportion. we can see that hong kong was not affected, simply because the local currency is the dollars (honk kong dollar).figure 4: nominal exchange rate vs. the u.s. dollar (u.s. dollars per local currency unit, 7/1/97=100): daily observations.source: craig burnside, martin eichenbaum & sergio rebelo. prospective deficits and the asian currency crisis. p.5after the summer 1997, south east asian economies were hardly affected, external debts worsen the situation. they all suffered from hard speculation and banks suffered from a lack of liquidity.the imf role:the imf (international monetary fund), an international organization of 185 countries aims to help countries to achieve sustainable economic growth and high level of employment in order to improve the living standards of the demanding countries (). the imf played an important role during the asian crisis, helping the concerned countries to recover the crisis. the organization set up programs including policy implementation and large-scale financial support especially for korea, thailand and indonesia (). i dont like indirect referencing. according to the imf, the financial system of high debt-equity ratio in asian countries was not sustainable and would obviously lead to a financial crisis. the organization responses to this situation are structural reforms, the imf itself lists this reforms as following: “the closure of insolvent financial institutions, the recapitalization of potentially viable financial institutions, the closure of the central bank supervision of weak financial institutions, a strengthening of financial supervision and regulation, maintaining the weakest sections of society by devoting budgetary resources, increase transparency in the financial, corporate, and government sectors and improve the efficiency of markets and increase competition” (). 4.4 incomplete referenceaccording to j. frankel, the rules of economies apply to the entire world including east-asian countries. he argues that the modern financial system, which is obviously the western one, is the best and then that it should be followed by everyone (j. frankel, 1998, the asian model, the miracle, the crisis and the fund, the u.s international trade commission).4.4in fact, the imf encourages the countries to open the financial market, to follow the western financial standards which are totally different from the asian ones and to eliminate all government intervention (robert wade and franck veneroso, the asian crisis: the high debt model versus the wall street-treasury-imf complex).4.4contrary to western countries, the asian financial system is characterized by a very high debt/equity ratio because of very high domestic savings which represents one third of the gdp. this system is only viable with the cooperation between banks, firms and governments. moreover, the government has to regulate and restrict foreign borrowing because they are dangerous for the system. who wrote those words? regarding its history, it is the first time the imf has to deal with a different financial system from western ones, even in latin america, the debt/equity ratio is low. nevertheless, the imf has advocated the same structural reforms and programs and has not adapted its advices to the asian financial system.in promoting this advices, the imf forget the most important cause of the crisis which is the important amount of debt accumulated through heavy lending from western countries and japan, and encourages countries to continue in this direction. robert wade and franck veneroso go further, they even argue that the imf has amplified and even helped to set the crisis of 1997-98. over the 1990s, asian governments followed the imf advices and they undertook financial deregulation (robert wade and franck veneroso, the asian crisis: the high debt model versus the wall street-treasury-imf complex). 4.4paul krugman argues that “as long as capital flows freely, nations will be vulnerable to self-fulfilling speculative attacks, and policymakers will be forced to play the confidence game” ().4.4thus why the imfs aim is to liberalize the capital market? the winners of these advocacies are obviously the governments and firms of the rich countries which are seeking new markets around the world and which can from now on, enter freely the asian capital markets (robert wade and franck veneroso, the asian crisis: the high debt model versus the wall street-treasury-imf complex).ok, but you have to finish that argument off. how did the imfs policies make the crisis worse? you do not explain fully. the crisis aftermaths:why have you added this section? how does it help you to answer the question? the economic collapse of the target countries caused a negative impact on the economic world. in fact the drop of the asian demand influenced the products prices market, slowing down the global economic growth.figure 5:crisis impactsource : imf, 20024.4that publication should be in your reference list, but is not. why not? you have quoted from it. as we can see on figure 5, after 1997, both the global gdp and trade fall down. so it is reasonable to say that the 1997 asian collapse contributed to slow down the world economy. but the main impact was of course on the asian economies, figure 6 show us that south korea, japan and singapore were all in situation of recession after the 97 collapse, whereas they recorded an impressive growth in 1995 for south korea and singapore and a shy but nevertheless positive growth for japan. 19951998south korea10.31- 6.18japan1.9- 1.2singapore8.03- 0.86figure 6: nominal gdp growth in 1995 and 1998 source : sherbrooke university, world perspective4.4that publication should be in your reference list, but is not. why not? you have quoted from it. consequences were also social, in fact the unemployment rate raised because of the economic crisis, for example in south korea (probably the most affected country) the unemployment raised from 2.5% in 1995 to 8% between 97 and 98 (world bank). the clandestine work also increased but it is difficult to measure because of its nature. the labour force suffered from a drop of wages and massive expulsion of illegal workers: 280 000 expulsions in south korea in 1998 (world bank). in general the 1997 collapse brought a rise of precariousness and poverty in south asian economies.that whole section should have been omitted. conclusion:the crises are inevitable, as long as there will be financial markets, there will be cycles of expansion and recession. but the vulnerability in the crises can be limited.improve the information is necessary, so that it is possible to follow the evolution of the situation and to act in the appropriate time. if the rest of the world had known how much the financial systems of these asian countries were weak, we would have been able to cure it earlier. also, if the imf had known how fast the currency reserves of the thailand fell down, then those of korea had been reduced, the economic policies would have been able to be adjusted.secondly, the financial sector plays a crucial role in all the cycles of expansion-recession in industrial nations as in developing countries. it is essential that prudent procedures and control suited are organized and that banks are capable of estimating the risks. so the reforms of the financial sectors are extremely important.thirdly, one of the big lessons of this crisis is that countries has to be careful not to apply a regime of fixed exchange rate if it is not ready to give themselves the means they need a healthy banking system and a solid position of reserves, which can support a defensive increase of the interest rates to take away the speculators. but few countries can maintain a fixed exchange rate when the situation degrades.fourthly, the liberalization of capital markets must be careful. the problem of the asian countries was not the liberalization of the capital movements, but the fact that it was not operated in the good order and that it was only partial. it is necessary to recognize that the access to foreign capital widely contributed to the fast growth of the asian countries before the crisis. even if their production decreased in 10 %, their growth during the last twenty years would be still impressive. it is especially important that the liberalization of the capital movements is made in the good order, so that the financial system is capable to channel the capital towards productive investmentsnone of those remarks are focused on the question. 2.2to answer the questions, we can say that south east asian economies collapsed because of inadequate macro-policies, it resulted from this a large account deficit, a wrong appreciation in real exchange rates, high external debts, weakness in balance of financial institution and excessive non-performing loans. the crisis of exchange rates depreciation conducted to a financial and currency collapse.this is reasonable to say that the imf decisions exacerbated to situation of the financial crisis in 1997. why? !you have not explained why! it is not enough simply to state a conclsuion; you must offer supporting evidence. 7.1but after few years, the imf largely contributed the restoration of the financial & economic situation in south asia. (see the contribution of the imf on the assistance after the crisis, in particular in south korea, on figure 7).figure 7:4.4that publication should be in your reference list, but is not. why not? you have quoted from it. references:4.8 should be arranged alphabetically by authors surname. - craig burnside, martin eichenbaum & sergio rebelo. prospective deficits and the asian currency crisis. journal of political economy, 2001, vol. 109, no. 6j. 2001 by the university of chicago.- j.a frankel. the asian model, the miracle, the crisis and the fund. 1998- jenny corbett & david vines, the asian financial crisis, lessons from vulnerability, crisis and collapse. 1998 - steven radelet & jeffrey d.sachs. the east asian financial crisis: diagnosis, remedies, prospects. brookings papers on economic activities, 1: 1998- m. goldstein & j. hawkins. the origin of the financial turmoil. may 1998- r. wade & f. veneroso, the asian crisis: the high dept model versus the wall street-treasury-imf complex thats an absurdly inadequate reference! thats an absurdly inadequate reference!overallthis is a good effort spoiled by a failure to keep focused on the specific question you were asked and a failure to explain precisely what the effects of the imfs policies were. common problems in the written work of studentslast amended by john ramsay 25.4.07index of contents1. answer planning and technique181.1 poor allocation of effort to the set tasks181.2 failure to answer the questions asked181.3 overly descriptive answers192. answer structure192.1 poor introductions192.2 poor conclusions193. answer format203.1 inappropriate choice of writing format203.2 inappropriate layouts lists & paragraphing204. use of the literature214.1 insufficient evidence of reading214.2 failure to specify sources of evidence214.3 poorly integrated or applied quotations, diagrams or data214.4 inappropriate referencing formats224.5 unacceptably vague or general references224.6 inappropriate references to search engines etc.224.7 excessive reliance on non-academic sources234.8 incorrect reference list formats234.9 redundant definitions235. writing style245.1 inappropriate non-academic writing style245.2. i