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AFC (Asian Financial Crisis) (consequences (summary (Thai baht devaluation…

- - - - 🇹🇭: 8% of major commercial banks' loans non-performing @ AFC outbreak
      - 🇵🇭: in Jun 1997, >3%
    - - banks financed corporate I plans focusing on mkt share w inadequ8 attention paid to returns generated
      - banks in countries w credit xpanding fastest accepted ⬆️singly narrow interest margins even as riskier business was undertaken
      - less efficient banks kept afloat by govt guarantees (implicit & xplicit) instead of being forced to leave industry / merge w more efficient banks
  - - - xcessive govt ownership / involvement in banks esp in 🇮🇩, public disclosure & transparency requirements poor qlty & banks not required hold sufficient equity in balance sheets ➡️ encouraged financial institutions engage in xcessively risky lending in xpectation govt bail 'em out if things went wrong
      - ^ crony capitalism ➡️ poor decision-making, xtravagant behaviour & fraud, undermining economic & financial syst of SEA countries
        
        🇮🇩 banks never refused lending to businesses owned by branches of ruling Suharto fam, lenders couldn't conceive borrowers allow debts go unpaid even when particular I failed
        
        business leaders ez access to govt contacts & subsidies, could rely on st8 bailouts if got into financial trouble
        
        banks & financial companies often directed by govts to xtend loans to firms having close links on 'em
        
        kick-backs & other forms of corruption ensure continued preferential treatment of corpor8 enterprises by govts
        
        govts meted out lenient treatment to fraudulent business leaders bc they came from society's privileged classes
  - - - 1992: foreign liabilities 6% of all bank liabilities in 🇹🇭
        1996: 24% just b4 crisis
      - Japanese, German & British banks largest lenders to SEA
    - - 🇹🇭
      - given overseas origin, short-term obligations left banks searching for rollover funds if xisting loans ever called in
        
        as of jun 1997, short-term loans as % of outstanding loans: 🇹🇭 66, 🇮🇩 banks 59, 🇲🇾 56
  - - - idea that country's c/a deficit not a concern provided resulted from priv8 & not public sector (used for I & not C); if monetary policy set appropriately & priv8 sector decision not subj to significant distortions
        
        country could become xcessively dependent on foreign short-term capital flows
    - - "over borrowing" ➡️ major debt crisis
      - opening c/a prematurely ➡️ massive capital flight from country in Q
      - national authorities lost some control over monetary policy, economy become more vulnerable to xternal shocks
  - - - Japan largest / 2nd largest SEA trading partner meant competitiveness particularly sensitive to changes in yen / dollar xchange r8
      - during AFC, SEA countries not only running on large c/a deficits, their strong currencies made it harder to fund 'em
    - - ➡️ encouraged xternal borrowing ➡️ xcessive xposrue to foreign xchange risk in financial & corpor8 sectors
      - ➡️ banks following risky borrowing strategies bc couldn't believe danger of dollar devaluation happening ➡️ didn't hedge foreign currency borrowing
    - - large differences b/w liabilities (short-term debt) & foreign reserves (liquid assets in form of foreign currencies held by local govts)
      - false sense of security of fixed xchange r8 ➡️ unhedged borrowing spree
      - ⬆️ed reliance on short-term capital inflows
      - xtravagant instruments on borrowed capital in grandiose corporate xpansion projs