Main Messages of Chapter 1

 World in 1.5% slowdown  Outlook for export earnings and financing difficult  All developing regions decelerate in 98/99 compared to 97  Recession possible, and risks mutually reinforcing

Growth of industrial and

10

developing country GDP, 1970-2003(f)

Percent

10 1998-2003 projection

First oil

8 8

shock Asian financial crisis 2nd oil shock start of debt crisis

6

Early 90s recession

6 4 4 2 2 0 1970 1975 1980 1985 1990 1995 2000 Industrial Developing excl. transition

Note:

GDP measured in constant 1987 prices and exchange rates.

Source

: World Bank data and projections, November 1998.

0

% 15 10

World export growth

3-month moving average, y/y with projections 1999/2000 volume 1999/2000 projection in SDRs 5 in US$ 0 -5 Sep-95 Mar-96 Sep-96 Mar-97

Source: Datastream and DECPG staff estimates

Sep-97 Mar-98 5 0 2000 -5 15 10

Change in terms of trade as proportion of GDP, 1998 Middle East and North Africa East Asia-5 Former Soviet Union Sub-Saharan Africa Latin America United States South Asia Japan Central Europe -5 Source: World Bank estimates. -4 All developing countries -3 -2 -1 0 1 2

Net long-term private flows to developing countries, 1980-98(e)

Billions of U.S. dollars

300 250 200 150 100 50 0 1990

Source

: World Bank data.

1992 Foreign direct investment Portfolio equity Bonds 1994 Commercial bank loans/other 1996 1998

Spreads on Brady Bonds and U.S. high yield bonds, January 1995-October 1998

basis points

1600 1600 1400 1200 1000 Brady bond spread Oct-30 1400 1200 1000 800 600 400 U.S. high yield bond spread 200 Jan-95

Source

: World Bank.

Jan-96 Jan-97 Jan-98 800 600 400 200

4 2 6

Percent

8 Annual GDP growth in developing regions, 1997-99 1997 1998 1999 0 East Asia South Asia Europe and Central Asia Latin America & Caribbean

Note:

Real 1987 dollars.

Source:

World Bank data and projections, November 1998

.

Sub-Saharan Africa Middle East and North Africa

0

Low-case scenario: output effects across regions, 1999

Difference in 1999 growth rate from baseline projection -1 -2 All developing countries -3 Latin America & Caribbean East Asia Middle East oil exporters

Source:

World Bank estimates, November 1998

.

Europe and Central Asia Sub Saharan Africa South Asia

Main Messages of Chapter 2

 we were dealing with a different type of crisis than 1980s debt crisis  the appropriate policy responses were probably quite different  looking forward, supportive macro and corporate and debt restructuring keys  policies to protect the poor needed to have been given a bigger role

Debt Service Ratios were low or falling, 1982 and 1996

70 60 50 40 30 20 10 0 EA-4 LAC-4 D/S 1982 D/S 1996

The Critical Vulnerability: Private Short Term Debt to Reserves

 ST Debt to Reserves in East Asia rose rapidly between 1994-97, exceeding 100%  In LAC, they were falling

140 120 100 80 60 40 20 0 E.Asia (5) LAC (5) '1994 '1997

Economies in Tailspin: Private investment in Thailand and Korea, 1990-98

Index 1991 Q1 = 1

1.8

1.6

Thailand: construction area 1.4

1.2

1 0.8

0.6

0.4

0.2

0 Q1 94 Q1 95 Republic of Korea: Gross investment index fixed investment (SA) Thailand: BOT private Q1 96

Growing financial fragility

Q1 97

Onset of crisis

Q1 98

Source

: Datastream.

Estimates of non-performing loans, capital asset ratios, and costs of recapitalizing banking systems 40 30 Non-Performing Loans (%) 1998 Capital Asset Ratio (%) after NPL writeoff 20 10 0 -10 -20 a In n o d esi 19 o K rea 30 h T ai lan d 30 Cost of bank restructuring as % of GDP

Note:

NPLs are mid-points of ranges cited in source; recapitalization assumes 8% capital asset ratios.

Source

: J.P. Morgan 1998b.

Social Consequences & Lessons

Changes in key indicators  Interests of poor should have been more central  Social safety nets not a substitute, but critical  Ex-ante social safety nets needed

20 10 0 -10 -20 -30 -40 -50 Une mpl oy me nt Indonesia Thailand Korea Re al Wa ge s

In percentage

Pov ert y

In millions

Main Messages of Chapter 3

 Crisis prevention is now key  Risks of crisis amplified by interaction of many causal factors  Need to adapt the pace of financial liberalization to institutional capability

15 Incidence of financial crises, 1970-97 22 Currency crisis Banking crisis 10 5 0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996

Source

: Caprio and Klingebiel 1996a, Frankel and Rose 1996, and Kaminsky and Reinhart 1997.

Cumulative loss of output per crisis for industrial and emerging economies

Percent of GDP

20 18 Industrial 16 14 12 10 8 6 4 2 0 Currency crises Emerging Currency crashes

Note

: Only crises with output losses are represented.

Source

: IMF 1998b.

Banking crises Currency and banking crises

Net capital flows to Mexico, 1990-96

Millions of U.S. dollars

25,000 20,000 15,000 10,000 5,000 0 -5,000 -10,000 -15,000 -20,000 -25,000 Portfolio debt 1990 1991 1992

Source

: IMF, World Bank

.

FDI Portfolio equity 1993 Non-FDI 1994 1995 1996

Economic growth and capital account liberalization in 100 countries, 1975-89 0.06

0.04

0.02

0 -0.02

-0.04

-0.6

-0.4

-0.2

0 0.2

0.4

Capital account liberalization index 0.6

0.8

1

Note

: The figure is a partial scatter plot (controlling for per capita income, secondary education, quality of governmental institutions, and regional dummies for East Asia, Latin America, and Sub-Saharan Africa.

Source

: Rodrik 1998.