tv The Asian Financial Crisis Deutsche Welle November 19, 2022 3:15am-4:01am CET
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revealed this week on d. w. ah, ah, it. hong kong late september 1997, all the world's financial elite are flying in to come together for the annual conference of the international monetary fund and the world bank. these 2 institutions were established at the end of world war 2, to promote smooth economic growth and to resolve crises quickly as they occur. when the heads of the financial world arrive in hong kong, they can look back on more than in years of strong stable growth. the demise of
many communist economies and height and growth in east asia have created a boom. meanwhile, the global economy has moved toward an increasingly intertwined division of labor. southeast asian countries have been contributing strongly to growth in recent years . but for the past few months, the currency crisis in thailand is slowly turning into a massive economic crisis. and now threatens to spread to other countries such as indonesia and the philippines. so the participants at the hong kong conference aren't just there to pad each other on the backs. delegates from asia in particular are concerned and are pushing for a joint crisis. team made up of all the major countries, finance ministers,
the heads of the financial world come mainly from the west, the king pins of the new global economy. when they meet in hong kong, they can't imagine that their perfect world of steady growth might be endangered. but in fact, the crisis that began in thailand was to develop into a wild fire that would engulf the entire region and bring misery to millions. the asian financial crisis is to be the 1st modern financial crisis in the globalized world. yet the global financial elite is unprepared for the destructive elements that would come to characterize all future financial crises from then on fast forward only 10 years. and the world is literally on the brink of collapse when in 2008 in 2009. first, the banks, united states,
and then the financial system of the entire western world threatened to disintegrate. left, the heads of the financial system and western governments had failed to learn the lessons of the asian financial crisis. dell had, they understood the causes of the asian bush fire and fought them decisively. they could have been spared the near collapse of the financial sector. 10 years later, the problem was the speed with which the financial markets acted out of sync with the speed of politics, a visit to om until the yo ass financial crisis in 2007. the lessons from the asian crisis hadn't really been taken seriously. and people thought that doesn't affect us, but it won't affect us, it was least better. and today, where do we stand today? the world is currently facing many crises. how great is the danger that the global financial economy will crash again?
our policy makers better able to keep pace with the financial markets today. it's surprising in retrospect, how little was learned from the asian financial crises in 2008. right. i mean, in effect, much of the memory of 9798 was buried or it was somehow declared exotic . the developing and emerging countries, and se and east asia had become important engines of global economic growth since the 1980s, aptly named tiger economies. when they are hit by the crisis, one after the other, the middle classes are almost wiped out. millions lose their jobs. hunger returns to countries that had finally been seeing prosperity. riots break out. it took 5 years before we got back to 1996. so it was, it was a pretty deep and long crisis back then thailand was the model of the new global
division of labor. it was one of the 1st countries in the region to see a lot of foreign capital flowing in starting in the 1980s. at 1st, it was mainly japanese companies investing with components or entire products manufactured in the country. labor was cheap, as were raw materials. i remember in, in the mid eighty's i'm time and poverty rate was at 30 percent. so 3 percent of population, you know, were poor today. it's down to 9 percent. right. so it took time, but here they were people who actually were able to benefit from, from this graph almost all the countries in the region were booming. more and more young professionals were coming out of the universities. asian countries were allowed entry into the anti chamber of sustainable prosperity
bank hunt grew very quickly at that time as well because a lot of money was flowing into time and through low in some overseas. and these are like high companies from borrow to in vastly different forgiveness. the we mustn't forget that in 1993, the world bank published a hugely influential book. i showed that stud up a great deal of controversy. both of these got thus east asian miracle adjustable not wendy vis, or if the world bank a highly influential organization labels an entire region like this, than a vast as well be keen to get into that region. and that's exactly what they did. ah, the world bank and the international monetary fund are headquartered in washington . their analyses and forecasts carry considerable weight and the international financial world. their assessment for the region in the spring of 1997 is entirely
positive. joseph stieglitz is the world bank's chief economist at the time focusing on east asia. and he shared this assessment. they put a more egalitarian of policy at the center. they were much more ah, equal societies than united states was. they are focused on governments investing and infrastructure investing and technology investing in education policies that i thought were good policy sport, united states, the kind of policies i had pushed when i was in the council of economic advisors of president clinton in the 1990 s. the same phenomenon could be observed again and again in southeast and east asia. within the shortest time, an urban economic culture had evolved with great opportunities for social advancement. in just one generation, farmers became engineers. much of the money borrowed from abroad was invested in the future of these countries.
these are in themselves the ingredients to a success story. but what was it that triggered the asian crisis in the summer of 1997 bringing an entire region to the brink of the abyss? in the 1980s, the neo liberal restructuring of the international financial system had begun. first in the united states, deregulation of financial institutions meant that the rules for granting loans became much more lax. a bank no longer had to keep reserves of the equivalent amount in its bolts for the capital it lent this rule had previously acted as a break on the volume of loans from now on wall street multiplied the amount of money that entrepreneurs in particular could borrow the growth of the world economy owes much to this neo liberal financial policy. but the downside of the neo liberal
monetary policy is that the mass introduction of new players in the game changes the financial landscape wherever they would borrow money from wealthy investors and invest it with the intention of making the highest possible profit with the fastest possible turnaround the asian markets, with their above average growth rates, were extremely attractive to them. from now on. the world of money is unstable at its very core. it's a watershed moment in history and our culture that is kicked off in new york and whose consequences can be felt to this day from now on financial institutions and the global financial sector grow at a previously unimaginable pace. investor, anticipation drives, bankers forward, short term profits are best made from short term fluctuations in the global economy . from currency fluctuations,
as in the case of the southeast asian countries and crisis from fluctuating returns on oil, oars, and wheat. once he's not deregulating in the late 19 seventy's and early ninety's, the financial set to explodes in size. finance is begin to get paid a lot more relative to other professionals. and inevitably, you start to have more financial crises the new players work at a breathless pace. for many, the time frame in which they trade money is no longer than 2 weeks. a month or even a day. finance has its own rules that are independent of developments and the real economy. so to pump out as much borrowing and lending and financial activity as he possibly can to get paid. and it's a bit like a nuclear power station designed to pay its employees according to how much
electricity they can generate, not how much electricity consumers actually meet with. and a new kind of banker emerges. he defines himself as greedy because that is what is expected of him. he competes with others. he competes for the lion's share of investors capital. this gives rise to a dynamic of its own. one of the fact as you scale, it's just the scale. it's huge thailand, crisis is already a crises of tens of billions of dollars, right. this is significant money. ah. when the heads of the financial world meet in hong kong in september 1997. very few of them have an inkling of what is already brewing. right? before their eyes, the international monetary fund, the host of the conference, is the very institution that was supposed to oversee the global financial markets and ensure their functioning. if a debt crisis arose in a country,
the fund could extend loans, which were usually tied to top restructuring measures for the affected countries. just different and of course as if spielberg had planned it the conference in hong kong in 1997 was perfectly timed at the i m f. and the world bank hauled the annual meeting outside of washington every 5 years now. and in the midst of the crisis, they met in hong kong companies and private investors and thailand had borrowed a lot of money from abroad in order to be able to further increase their exports, as well as to profit from the increase in property values. just as later in the us financial crisis, the investment rush is based on the assumption of steady growth. therefore, companies and private individuals take on short term debt in order to be able to redeem their loans as quickly as possible from the projected profits. when thailand's export boom begins to falter due to an economic slump in japan,
and the 1st companies run into difficulties, the japanese banks are the 1st to become nervous and cancel loans. in thailand, in thailand, substantial investments were made in real estate. and that real estate, of course, yields profit size, but in tie bombs, even if investors accumulate debt in u. s. dollars in order finance, real estate projects in thailand and the tie bart to you asked on our exchange ride, plummets husky, then they have a problem. it's up that obviously i'm probably, ah, in order to avert the devaluation of the bought the thai government, then sent emissaries to beijing and tokyo in early june to ask both countries for bilateral loans and hard currency. ty companies needed us dollars to repay their loans abroad. both countries refused to provide the ty, central bank with enough foreign currency, which they could abused to keep the exchange rate stable and counter speculation.
to buy bank comedy central bank can maintain a fixed exchange rate at the same time. however, currency reserves slowly begun to dwindle. but slowly we say at some mcclain, it's not so easy to predict when that point will be. that's what all of a sudden enough people start saying maybe that's not such a good idea of them not. and then there's a run on central bank reserves and suddenly they collapse. and that's when there is an exchange rate crisis once done have good evening. next request, please. ah, the foreseeable downward spiral now begins to trigger activity among hedge funds and speculators in new york. their figure head is george soros. the speculation process goes like this. and investor deposits the security of $1000000000.00 us dollars with a bank somewhere in the world. then he goes to a bank in thailand and takes out a loan for 25000000000 bought. this is the official equivalent of $1000000000.00.
he sells the bought on the open market. immediately. other money traders follow suit because they now fear that the price of the bought will fall when the exchange rate of the box to the dollar has fallen. for example, by 30 percent the investor than buy's back that $5000000000.00 bought was only $700000000.00 us dollars there by redeeming his loan. he has made a $300000000.00 profit and then high tails it out of the country. i think that i've been paid for everything. i am basically there to, to make money. i cannot and do not look at the social consequences of what i do, you see hurting. you see very large scale private sector activity directed against states, which only very big states can actually survive. so thailand is not big enough to resist a comprehensive leverage to run on its currency by the hedge funds of this world.
the united states is the thailand didn't so the by shot up from $25.00 botany estella to 50 by the us dollar. and this, in your me, firms, a company that bought overseas very, very in distress because they couldn't pay back, especially when they are loans, which is now in a double the size. it was when they borrowed it. so that actually had caused to panic, up my creditors overseas. so many of their creditors overseas actually asked where their money to be returned. and of course, in the banks in thailand who with the mediator between these funds, could not return them. on july 2nd, the ty central bank gives up the fight against speculation and releases the exchange rate of the bart, leading to an immediate devaluation. this date marks the outbreak of the asian crisis, but it is still considered to be just a local problem. on july 28th thailand asks the i m f for loans. but the
i m f is reluctant to step in and help us probably in, by the, in the problem was that the international monetary fund had committed itself fairly early on and had said that this crisis was mainly home grown schematic, mainly homegrown ah, the result is a massive recession for thailand. it's a harsh psychological shock for the country that had so firmly believed in its rise into the league of prosperous countries as foreign investors. fleet thailand, there is no authority to control the panic. as heter either they would have had to have been a plan who during the speculative phase provided dollars, ideally an unlimited amount to the issuing banks. which conscious simply print dollars and now and did that, doesn't the rental at the hong kong conference at the end of september to
very different realities clash while the west is celebrating the victories of neo liberalism, a robust and growing world economy and the exponentially increased importance of the financial sector, asia as experiencing ramp and fear amongst its populations. the finance ministers of the affected countries have an inkling of the massive social upheavals they will face as a result of the withdrawal of international investors and the panic on the financial markets. but the king pins of world finance aren't listening. as they convene in hong kong guy m. f came together to push even more deregulation capital market liberalization. they were pushing a set of policies that would have made things even worse. the in the lots of novels he, i am an almost the countries to stifle investment of any kind as well as consumption either at the height of the crisis. because by drastically increasing the base
rates lines, that was a mistake wouldn't thus far in tokyo, before the conference, people are worried that the economic power of the entire region could collapse. trade with southeast asian countries has become steadily more important to the japanese economy. in recent years, when tight glass is split to indonesia, then we are afraid that that crisis may split 2 other part of their asia. but at the time when the crisis took place in thailand, we didn't expect such an a ah split. he'd been journeyed to korea ah. in tokyo's government district, staff at the finance ministry are putting in long hours discussing how to avert the
looming recession. the i m s strategy for thailand and indonesia are considered wrong. both countries need new and long term loans to reform their economies without bankrupting many of the countries, companies and banks. you don't increase the capacity to grow to repay debt by causing a depression, which is what the i m f debt. there were very clear alternatives. and i laid out very clearly why the high interest rates, tight monetary policy and austerity, predictably, would make things worse. and then the japanese government develops a plan to set up an asian monetary fund. this is to be in doubt with $100000000000.00 us dollars. this large sum would on the one hand com, the international financial markets and at the same time,
make large loans available to the effected countries. japan as soliciting the support and participation of the governments of singapore, china and korea in particular deals until the november 9th 97. not international institutions didn't play any effect. oh, in preventing that kind of crisis. even managing the crisis. that was a real problem. lou during the hong kong conference in late september stock market news and exchange rates signal that the crisis is spreading unchecked. the japanese government did propose they, they stablished renovation laundry fund in the hong kong. however, that tile an o. u. s. government invented joanie and rally summers who has to be presenting the u. s. a treasury. i'll pose
a guy published what raised ation. linda defy her behind the scenes in hong kong. both so khaki bara and summers are seeking support from other key delegations. in the run up to the conference, the us treasury department had informed all governments in east asia that it was strictly against an asian monetary funds. the approach prevails. no one dares opposed the united states. the hong kong conference would have been the ideal opportunity to avert the crisis. but the loans made available to the hard pressed countries were too small. there is small scale maneuvering and waiting. meanwhile, the crisis rapidly worsens. the global financial crisis of 20082009 is ultimately defeated by the u. s. government's willingness to deploy the maximum amount of money, thus stopping panic and speculation. this political will was lacking 10 years
earlier in hong kong. as low as got off until 2000 the 7 there was this sense of arrogance that people said, well that's the asians and we can do it. banta, on to that's a common pattern in the financial markets. mr. austin, finance mac ah, hong kong is the most important banking in stock exchange center in asia. when a month after the conference there stock prices collapse. it's clear to everyone that the crisis is not over. it's only just beginning 3 flu. late november 1997 in tokyo's government district. the japanese government knows
that large amounts of money are needed to quickly save korea from default and massive economic collapse. it urges the u. s. treasury department in particular to act quickly and decisively career was the tense, largest economy in the world. and that time as it is today, it had only $8900000000.00 in reserves, not to long on the reserves or last, the government. only a few days, president clinton personally made a phone call to prison, came home some that the south korea is on the financial crisis. the u. s. president intervenes, making it clear that korea is of a different caliber than thailand or indonesia, economically and above all geopolitically. it's the bastion of the west against
north korea and china. korea successfully competes on the world market. important key industries such as electronics, car production, and shipyards. it's major companies like thailand's had borrowed heavily abroad in dollars when the exchange rate for thailand's currency, the one plummets, they are unable to repay their loans. only now at the end of november to the heads of the u. s. administration realised they must act. the fact are changing their minds is the geopolitical dimension. if korea had to declare and solvency, the reputation of the u. s. as a guarantor, power for south korea with supper massively in the eyes of the world. flew in tokyo,
the government urges the u. s. treasury to hurry, a large rescue packages to be put together in which many participate. korea has already agreed to many of the i m. s. conditions. everything seems ready for the deal. when finally the i am at the director also flies to sol. everyone expects the korean rescue package to be ratified, but called to su, surprisingly, demands further concessions. he demands that the interest rate on loans be raised to 25 percent in order to attract foreign capital. the korean finance minister replies that many companies would go bankrupt as a result and the economy would collapse. and that is why no foreign finance ears would invest. but call to sue insists on pushing through as demand. so a 90 minute savit, careers, stock market fail. 49 percent have i'm his father and that's not
the worst. these change rate contain clean walk in your us dollars. croft, 65.9 percent. so if you can hi, depreciation on the currency and then drop in the stock market index. you know, that flushing the wealth accumulated in the past 20 years or wife dropped a won't owe us group. of course, here many people are losing jobs. companies weren't going bankrupt. so it was a depressing time for it. ready the loan package for korea comprises $55000000000.00 us dollars. the highest sum ever approved under the leadership of the i m f. the i m f itself wants to provide
21000000000 the world bank 10. the asian development bank for the remaining 20000000000 is to come from the rich industrialized nations, especially the u. s. and japan, which had urged washington to put together a large sum treasury secretary, robert rubin in particular, had long been reluctant to contribute to any us budget funds. i think in the final stage, a summer has succeeded in sort of persuading mo, blue me in the infusing money to korea. so that together with the u. s. government will you, i have lou to so to refuse a fairly large amount of money to kahlea, to celebrate crisis woven omi was a really difficult to blend at that time. i
i and left negotiators and korea urge speed, financial help predicting the country's bankruptcy as the only alternative when it becomes known that the u. s. government didn't want to pay out its participation in cash at all, but only to deposit it as collateral. they are disappointed in the week running up to christmas a plan b is feverish li discussed to new york, which is supposed to involve the banks of wall street and the rescue of korea. the last resort. the banks must defer any loans due at the end of the year and accept longer maturities, but who should act as broker? that's when the director of the new york federal reserve steps in he had the most powerful branch after the u. s. federal reserve. he gathers the heads of the most important american commercial banks. the bankers are led into a room in the fed,
where bill mcdonna begs them to give korea more time to repay the loans that are due for repayment. instead of adding fuel to the flames, he asks them to aid the return of confidence and stability to help the korean economy recover. ah, it's christmas 1997 and time square is full of shoppers. at this point, the major commercial banks on wall street agree with mcdonalds argument between the lines. he has threatened them that they have to cooperate or else risk writing off all their loans. there was now a good chance that european and japanese banks will follow suit. at this point, if korea had had to declare bankruptcy, the asian crisis would already have turned into a global economic crisis. mcdonna saved korea
a sigh of relief is breathed in washington, new york, patio and other metropolises. the i m f staff also catch their breath. many of them have worked through the night, so for recent weeks they are simply exhausted. every one hopes that the worst is over, but they're wrong. for with the beginning of 1998, the effects of the combined impact of the currency crisis. the banking crisis and the economic crisis are now becoming reality. with in mid january indonesian president, to harko signs a treaty with the i m f that instigates massive cuts in the economic system. many interpret this as the subjugation of southeast asia.
but by the time the agreements are signed, it's too late to avert indonesia. economic crisis, riots break out more than a 1000 people die, and poverty returns to the country in full force. the international monetary fund has insisted that the government cancel many of its infrastructure projects as well as food and gasoline subsidies. it will take a decade for indonesia to recover. ah, the south korea recovers much sooner as early as the end of 1998. until then however, society as a whole is going through a nightmare. so many people becoming homeless. you know, south korea has a tradition of not having homeless other than the immediate aftermath of the
korean war. but we begin to have a homeless, homeless coming to the in the parks streets, ah. and more than the great number of small and medium farms went bankrupt k and they were increasing. so the site k and keith, when they go, could not go to scores. they were taught her social trauma. in korean society k, it was at one of them most the tragic moments in south korean contemporary history . ah. is hierarchical, no, so intensely hierarchical in that sense? yeah. i mean the, the, the costs and benefits of the programs which are imposed all huge the i symmetric. absolutely. so some people are bailed out and other people have to pay the
adjustment costs. it's not for nothing d. m. fees of was on place and the u. s. use the crash in south korea, for instance, to buy up companies really cheaply, after the country had slipped into crisis z a b leash with a name an off to calvin. ah, but some of the structural reforms demanded by the i m f will actually benefit the korean economy. the close ties between the state and the private sector are loosened and the private sector becomes the motor of change for the better. once it can borrow money again and slowly regains the confidence of the international financial market, there was a collusive ties between the government and big business corporations, k. they were simply symbiotic. and then in the past, when b corporation had the financial problems, the government would always intervene and pay them out. the $9.00 to $97.00 financial christ was a curse to us. but at the same time, he was
a blessing ah, one cigna, the cont, aspect of korea's renaissance is that the korean government refuses to meet other i m f demands that would have required export oriented companies to cut back significantly on their capacity. as world market demand, once again looks to korea, they managed to repay their loans faster than expected. from then on, the banking sector is efficiently supervised and the formerly largest bank is sold to an investment group that includes way, john schon. he leads the negotiations at the time. they learn less from how they got into the prices, but they fundamentally restructure the banking system. brought a credit culture sold week banks to for a masters like ourselves, re capitalized though spanish. and then more importantly, adopted
a risk management system so they prevented themselves from being exposed to a lot of launch risque lumps. and that is why 12008 came the asian backs were in there, the shape ah, in late 1998, hong kong is attacked by hedge funds lead again by george soros. they bet on falling stock prices. and the valuation of the hong kong dollar as a result of the severe recession in southeast asia. but hong kong is able to fight back with the city government and central bank together erecting a firewall of hard currency. with over $400000000000.00. speculation collapses. it is exactly the same strategy that is used to restore confidence in the global financial system in the western world in 2008, 10 years later in the aftermath of the crisis,
the countries of south east asia will take measures to protect themselves against instability in the financial markets, they are monitoring their banks more closely than in the west and are building up very large foreign exchange holdings to defend against new speculation. this is interpreted as east asia decoupling from the west. but when the global financial crisis in 20082009 causes large parts of the western financial system to temporarily collapse, these countries have enough reserves to be able to keep their own bank stable. the 2008 financial crisis changes the international monetary funds perspective. since then, the 1st priority has no longer been harsh, austerity measures which usually lead to recession and poverty for many. instead, the focus is on proposals as to how countries and difficulty could become
prosperous economies. again, in the mid term with the help of loans from the i m f i think institutions like the i m f internationally, institution have a very critical role to play in this current environment of fragmentation polarization because the challenges that we face be it climate b digitalization, b, it inequality. the response is all the solutions have to be global, have to be multilateral ah, an independent institution that also has the relevant expertise would be a sensible consequence in view of the complexity of our global economy. however, the i m f can only take action if it is asked for advice and assistance by the governments of individual countries
lending a flag and they are as should you ask me if it would be nice if we had as supranational institution capable of exerting far greater influence than the answer is yes. and con, done is the, until the way the current international currency and financing system is organized is far from optimal because it's too powerful via in there is not enough cooperation. and to few options, flexion gift ah, on to, to be make the consequences that one parties actions affect all of the others consequence and doesn't. but i know my off the underline mit, i'm so betty. we know that the danger of global crises has not been averted for good, nor has the danger of major financial crises. this is because the volume of the global financial system has more than doubled since the asian financial crisis. in 2020, it comprised $463.00 trillion us dollars. a sum moved by the global financial industry
. annually. markets are here excited. they don't price or the cost of carbon the climate change, but they also don't price risk. the result of that is we have a society artemis that are not as resilient as they should be. i try to capture that are exam my writing with a metaphor. we build cars without spare tires. the asian crisis was the 0 hour of all crises in the era of a globalized world economy. only after the financial crisis of 2008, 2009 to people begin to think about possible precautions and regulations. this has not changed the basic paradox of global finance. the financial sector has a determined influence on the functioning of the global economy. and it still often thinks in terms of weeks or months. but i think the financial sector is really
important. you can't function a modern, complex society without a good financial sector. so we not only have to restrain the financial sector from not imposing harms on the rest of us. so we have to take an active role in shaping our economy and then go shaping our financial sector. so they do, they do what they're supposed to do. the challenges facing the world we live in a day are no longer regional, but affect all countries. climate change over population war alongside an escalating geopolitical battle between the u. s. and china. the consequences of any modern crisis impact millions of people in the asian financial crisis. this was also a bitter lesson for the countries of southeast asia. poverty and misery returned for many years. the asian financial crisis contained all the lessons we needed
to avert the crisis of 20082009. we now know that in our highly complex world, the bush fire, no matter how far away will inevitably have an impact on us to ah ah ah ah, how light began brand new insight into the microcosm, courtesy of the lattice, like keep them in microscope from yeah, now it shows us a like a cell division,
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learning the german language. hit me a lot. this kids to me and political, but unity to entrap you want to know their story in full migrant verified and reliable information for migrant. ah, ah ah, this is the w news live from berlin. ukrainians confront the dark and cold aftermath of a week of unprecedented. russian air strikes keeps nearly half of the nation's power. it has been knocked offline by russian missile attacks. 15 ukrainians is currently without.