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GLOBAL FINANCIAL CRISIS: THE ASIAN
STORY
arifanees.com - Information -Inspiration - Transformation
2
Global financial turmoil intensified after Lehman’s mid- September collapse
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/07
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10/2
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12/2
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2/26
/08
4/25
/08
6/25
/08
8/25
/08
10/2
3/08
U.S. Corporates, AAAU.S. High Yield, BBEuro area High Yield, BBB
Corporate Spreads (in basis points)
Source: Bloomberg LP.
0
100
200
300
400
500
600
1/1/
2007
3/1/
2007
5/1/
2007
6/29
/200
7
8/29
/200
7
10/2
9/20
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12/2
7/20
07
2/26
/200
8
4/25
/200
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6/25
/200
8
8/25
/200
8
10/2
3/20
08
U.S.
EU
Bank CDS Spreads (5-year, in basis points)
Source: Datastream.
3
arifanees.com - Information -Inspiration - Transformation
Financial firms accelerated deleveraging, selling assets….
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10/2
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2/15
/200
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4/15
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6/12
/200
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8/11
/200
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10/8
/200
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U.S. (S&P 500)Japan (Nikkei 225)Europe (Eurofirst 300)
Stock Market Indices (January 1, 2007=100)
Source: Bloomberg LP.
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100
200
300
400
500
600
700
1/3/
2007
3/6/
2007
5/4/
2007
7/5/
2007
9/4/
2007
11/1
/200
7
1/3/
2008
3/5/
2008
5/5/
2008
7/3/
2008
9/3/
2008
VIX Index(Index, January 1,2007=100)
Source: Bloomberg LP.
4
arifanees.com - Information -Inspiration - Transformation
...and cutting credit lines, causing dollar shortages
-125
-100
-75
-50
-25
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25
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3/1/
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5/1/
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7/1/
2007
9/1/
2007
11/1
/200
7
1/1/
2008
3/1/
2008
5/1/
2008
7/1/
2008
9/1/
2008
Japan yen British poundEuro
Cross-Currency Basis Swaps with U.S. Dollar(one-year tenors, in basis points)
Source: Bloomberg LP.
arifanees.com - Information -Inspiration - Transformation
5
Bold policy actions have been taken to keep markets functioning
Capital injections into banks Bank guarantees Monetary measures
Rate cuts Massive Liquidity Injections Fed FX swaps with foreign central
banks
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6
..resulting in a large expansion of the Fed balance sheet
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800
1,000
1,200
1,400
1,600
1,800
2,000
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07
Feb-
07
Mar
-07
Apr
-07
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-07
Jun-
07
Jul-07
Aug
-07
Sep-
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ct-0
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Nov
-07
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-07
Jan-
08
Feb-
08M
ar-0
8
Apr
-08
May
-08
Jun-
08Ju
l-08
Aug
-08
Sep-
08
Oct
-08
TAF PDCF
AIG loan Estimated forex swap lines
ABCP Credit Facility Other
Total Assets on Federal Reserve's Balance Sheet (In billions of U.S. dollars)
Source: Federal Reserve.
Late
st
arifanees.com - Information -Inspiration - Transformation
7
Liquidity strains have eased somewhat, but remain acute
-1
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2-Fe
b-07
7-M
ar-0
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ay-0
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12-J
un-0
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13-J
ul-0
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15-A
ug-0
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17-S
ep-0
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ct-0
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ov-0
7
21-D
ec-0
7
23-J
an-0
8
25-F
eb-0
8
27-M
ar-0
8
29-A
pr-0
8
30-M
ay-0
8
2-Ju
l-08
4-Aug
-08
4-Se
p-08
7-O
ct-0
8
United StatesEuro areaUnited Kingdom
Money Market Spreads (3-month LIBOR minus government bond yields, in percent)
Sources: Bloomberg LP; and Datastream.
8
arifanees.com - Information -Inspiration - Transformation
..and the crisis has spread to emerging markets
50
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100
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130
140
150
Jan-
07
Mar
-07
May
-07
Jul-07
Sep-
07
Nov
-07
Jan-
08
Mar
-08
May
-08
Jul-08
Sep-
08
MSCI: Emerging market
MSCI: Developed market
MSCI Equity Markets(January 1, 2007=100)
Source: Bloomberg LP.
100
200
300
400
500
600
700
800
900
1000
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-08
Aug
-08
Sep-
08
Oct
-08
Emerging Market CDS Spreads(5-year sovereign spread; basis point)
Source: Bloomberg LP.
arifanees.com - Information -Inspiration - Transformation
9
Asia has been hit quite hard, as funds have been pulled from the region
-40
-30
-20
-10
0
10
20
30
Jan-
06
Mar
-06
May
-06
Jul-06
Sep-
06
Nov
-06
Jan-
07
Mar
-07
May
-07
Jul-07
Sep-
07
Nov
-07
Jan-
08
Mar
-08
May
-08
Jul-08
Sep-
08
ASEAN-5 excl. MalaysiaIndiaTaiwan POCKoreaJapan
Source: Bloomberg LP.
Selected Asia: Net Equity Inflows(In billions of U.S. dollars)
arifanees.com - Information -Inspiration - Transformation
10
...and new financing has dried up
0102030405060708090
100
2003
-Q1
2003
-Q2
2003
-Q3
2003
-Q4
2004
-Q1
2004
-Q2
2004
-Q3
2004
-Q4
2005
-Q1
2005
-Q2
2005
-Q3
2005
-Q4
2006
-Q1
2006
-Q2
2006
-Q3
2006
-Q4
2007
-Q1
2007
-Q2
2007
-Q3
2007
-Q4
2008
-Q1
2008
-Q2
2008
-Q3
BondEquityLoan
Asian External Financing: Bond, Equity and Loan(In billions of U.S. dollars)
Source: Data provided by the Bond, Equity and Loan database of the IMF sourced from Dealogic.
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arifanees.com - Information -Inspiration - Transformation
…leading to sharp falls in equity markets and pressures on currencies
40
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120
140
160
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n-07
1-Fe
b-07
6-M
ar-0
76-
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-07
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ay-0
711
-Jun
-07
12-J
ul-0
714
-Aug
-07
14-S
ep-0
717
-Oct
-07
19-N
ov-0
720
-Dec
-07
22-J
an-0
822
-Feb
-08
26-M
ar-0
828
-Apr
-08
29-M
ay-0
81-
Jul-08
1-Aug
-08
3-Se
p-08
6-O
ct-0
8
MSCI: Asia
Japan (Nikkei-225)
MSCI: Emerging markets
Asia: Stock Market Developments (January 1, 2007=100)
Source: Bloomberg LP.
50
60
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80
90
100
110
120
1-Ja
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5-M
ar-0
7
7-M
ay-0
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9-Ju
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10-S
ep-0
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12-N
ov-0
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14-J
an-0
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ar-0
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19-M
ay-0
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ul-0
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ep-0
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IndonesiaKoreaMalaysiaThailandIndia
Exchange Rates Against the U.S. Dollar(January 1, 2007=100)
Source: Bloomberg LP.
arifanees.com - Information -Inspiration - Transformation
12
…and increases in CDS spreads
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/08
IndonesiaMalaysiaPhilippinesThailand
Selected Asian Countries: CDS Sovereign Spreads (Basis points)
Source: Bloomberg LP.
arifanees.com - Information -Inspiration - Transformation
13
Domestic liquidity conditions have also tightened
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Hong Kong SAR (left scale)Singapore (right scale)Japan (right scale)
Hong Kong SAR, Japan, and Singapore: "TED" Spreads1
(In percentage points)
Sources: CEIC Data Company Ltd; and IMF staff calculations 1For Hong Kong SAR, 3-month HIBOR and exchange fund bills; for Japan, 3-month LIBOR and OIS rates; for Singapore, 3-month SIBOR and treasury bill rates are used.
arifanees.com - Information -Inspiration - Transformation
14
Some countries have been more affected than others
Vulnerability factors include:
Current account deficits Reliance on external funding,
including by banks Significant foreign participation in
domestic equity and bond markets Domestic macro imbalances
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arifanees.com - Information -Inspiration - Transformation
Recent pressures also reflect concerns about the global outlook...
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-2
-1
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1
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2005
-Q1
2005
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-Q1
2006
-Q3
2007
-Q1
2007
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2008
-Q3
U.S. Euro Zone Japan
Industrial Production(Percent change from a year ago)
Source: Haver Analytics.
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2005
-Q1
2005
-Q3
2006
-Q1
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-Q3
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US Euro Area Japan
Purchasing Manager Index(Index, above 50=expansion, below 50=contraction)
Source: Haver Analytics.
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arifanees.com - Information -Inspiration - Transformation
Economic activity in the region has already slowed...
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-10
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10
20
30
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Jul-07
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May
-08
Jul-08
NIEs ASEAN-5 Japan
Selected Asia: Industrial Production(3-month percent change of 3-month moving average, SAAR)
Sources: CEIC Data Company Ltd; and IMF staff calculations.
0
5
10
15
20
25
30
35
40
Jan-
06
Apr-
06
Jul-0
6
Oct
-06
Jan-
07
Apr-
07
Jul-0
7
Oct
-07
Jan-
08
Apr-
08
Jul-0
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To U.S.To EUTo China
Emerging Asia: Direction of Exports(12-month percent change of 3-mma)
Sources: CEIC Data Company Ltd; and IMF staff calculations.
arifanees.com - Information -Inspiration - Transformation
17
...and leading indicators of global trade suggest further weakness ahead
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2,000
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6,000
8,000
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12,000
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1/2
/200
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2/1
/200
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3/4
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6/4
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7/4
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8/5
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10
/6/2
008
Baltic Dry Index1 (in $)(Benchmark for commodity shipping costs)
Source: Bloomberg LP.1 A composite of the Baltic Capesize, Panamax, Handisize, and Supramax indices.
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arifanees.com - Information -Inspiration - Transformation
... putting pressures on corporate and banking sector performances
800
850
900
950
1000
1050
1100
Dec
-06
Feb-
07
Apr-
07
Jun-
07
Aug-
07
Oct
-07
Dec
-07
Feb-
08
Apr-
08
Jun-
08
160
170
180
190
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220
Japan: enterprise bankruptcycase (left scale)Korea: companies in default(right scale)
Japan and Korea: Number of Corporate Bankruptcies(3-month moving average)
Source: CEIC Data Company Ltd.
0
200
400
600
800
1000
1200
7/2/
077/
30/0
78/
27/0
79/
24/0
710
/22/
0711
/19/
0712
/17/
071/
14/0
82/
11/0
83/
10/0
84/
7/08
5/5/
086/
2/08
6/30
/08
7/28
/08
8/25
/08
9/22
/08
10/2
0/08
India Japan
Korea Singapore
Australia
Selected Asian Countries: Banking Sector Credit Default Swap Spreads1
(Basis points)
Sources: Bloomberg LP; and IMF staff calculations. 1 Country spreads are weighted averages based on relative assets.
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19
Asian authorities have responded by taking measures to maintain confidence in the banking system Nearly all economies in the region have
injected liquidity, including through new facilities, extending the range of collateral or easing access to central banks’ discount windows.
A number of economies have extended guarantees to bank deposits (Hong Kong SAR, Malaysia, Taiwan Province of China, Singapore and Australia) and bank debt (Australia, Korea).
Some economies announced plans for bank recapitalization contingency funds (Japan, India, Hong Kong SAR).
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20
A macroeconomic policy response is also taking shape in Asia
With inflation pressures easing, a number of economies have cut policy rates (e.g., Australia, China, India, Korea, New Zealand, Taiwan Province of China, and Vietnam).
A few economies have also adopted fiscal stimulus measures (e.g., Australia, China, Japan, Korea, and New Zealand).
arifanees.com - Information -Inspiration - Transformation
21
Looking Ahead: Key Challenges for Policymakers in Asia
Policy makers need to minimize further tightening of overall credit conditions and its spillovers to the economy, including continuing to supply the banking system with
appropriate liquidity standing ready to recapitalize banks, and
extend bank guarantees, if necessary considering steps to support trade credit
Moreover, there is still room for macro policies with inflation projected to moderate,
monetary policy could be eased further to support growth
many economies also have room to ease the fiscal stance
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22
International Response
While the fundamentals in Asia are strong, Asia and the international community need to stand ready to provide financial support if the crisis intensifies and any country experiences serious external financing difficulties.
The IMF has just established a new facility to provide large and rapid disbursements to countries with sound fundamentals but pressing liquidity needs.
Swaps under the Chang Mai Initiative are also potentially available to Asean+3 countries.
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