Economic developments and prospects for developing Asian countries

Abstract

The slowdown in Asian growth that began with the export deceleration of 1996 and worsened with the, 1997 currency crisis tumed into a widespread regional contraction in 1998. At-3.2 percent, growth in the developing economies of East and Southeast Asia (excluding China) was the lowest in the post-World War II period. Private capital flows to emerging Asia, which reached $110 billion in 1996, tumed negative as foreign investors scrambled to move money out of supposedly risky markets. That forced central banks into monetary contractions, reducing domestic demand and exacerbating an already large bad debt problem. Although currencies stabilized near their depreciated end-1997 levels, export dollar receipts did not respond to the exchange rate stimulus as governments and investors had hoped. In Asia, the richer and more open economies generally did worse during the year. Southeast Asia remained at the center of the crisis, with Indonesia suffering a huge contraction, and Thailand and Korea hit by substantial declines. Of the four newly industrialized economies, only Taipei, China weathered the storm with little damage, while Hong Kong, China and Singapore were unable to avoid the impact of the regional slowdown on their trade and financial services based economies.