Southeast Asia and Financial Crisis: Causes, Experiences and Challenges

Southeast Asia and Financial Crisis: Causes, Experiences and Challenges

Shazida Jan Mohd Khan (Universiti Utara Malaysia, Malaysia)
DOI: 10.4018/978-1-4666-9806-2.ch012
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Abstract

The financial crisis in 1997 has delivered a phenomenal impact on the economies and threatens their banking and financial sectors. The lessons from the crisis are enormous. The affected countries have very much changed in their fundamentals in managing their economies and their banking sector. These efforts are specifically aimed at ensuring that their economy will be back on track and able to sustain whatever the coming future will be. However, these transformations are again being tested as soon as the global crisis hit the region. The Southeast Asian countries are stronger and proven more prepared in facing this new global crisis. This chapter will look at the background of the 1997 financial crisis and the global crisis. The discussion will allow readers to have a brief understanding of the crises and subsequently extend this knowledge into developing new research idea.
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Introduction

Banking remains the dominant financial segment in Southeast Asian (SEA) countries, with banking sector assets accounting for almost 60 percent of GDP on average (The World Bank, 2006). Among the emerging economies, Asian banking is considered the most expanding and show a significant growth in the last three decades. On average Southeast Asian developing economies have grown at almost eight percent per annum since 1960s. The increasing pace of financial market liberalization in these countries has increased the competitive pressures on banks. Banks need to be able to adapt and operate in an environment that is becoming more integrated. The most efficient bank will have a competitive advantage and banks that fail to be efficient may be driven off the market. When a banking system fails, public confidence and the whole economic system are severely affected. The region has experienced significant structural changes in the banking sector as a result of decisions made by policy makers to manage the issues of capitalization, governance, risk management and operational inefficiencies in the aftermath of several financial crises.

Table 1 shows SEA countries and including Korea banking crisis periods, (Beck, Demirgüç-Kunt, & Levine, 2003). Korea is also prone to crisis and 1997 has very much affected their economy even though they were considered as among most develop country in Asian. Meanwhile, Figure 1 illustrates the growth of domestic product (GDP) per capita for the selected countries from 1986 to 2014.

Table 1.
Banking crisis period
CountryCrisis Period
Indonesia1991-1992, 1997, 2007-2008
Korea1997, 2007-2008
Malaysia1985-1988,1997, 2007-2008
Philippines1981-1987,1997, 2007-2008
Thailand1983-1987,1997, 2007-2008
Figure 1.

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These countries experienced high economic growth averaging eight to nine percent per annum since the early 1990s except for the Philippines which experienced a sharp decline in early 1990s (Figure 1). The Philippines was struck by world economic slowdown that started in the1980s and a political crisis that continuously affected its economic wellbeing. In the early 1990s, the Philippines’ economy contracted again but with a stimulus package by the IMF, the economy regained its strength in mid 1990s. Among the major structural reforms in the economy include the dismantling of several monopolies and promoting privatizations.

Key Terms in this Chapter

Global Crisis: The current financial crisis.

Financial Crisis: A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated with a panic or a run on the banks.

Southeast Asian: Southeast Asia or Southeastern Asia is a sub region of Asia, consisting of the countries that are geographically south of China, east of India, west of New Guinea and north of Australia.

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