Global Financial Crisis: Global Financial Crisis: Fundamental

Transcription

1 Global Financial Crisis: Fundamental Causes and Remedies Narongchai Akrasanee, Ph.D. Chairman, Export - Import Bank of Thailand Chairman, MFC Asset Management Plc. 23 rd Asia-Pacific Roundtable 1-4 June 2009 Sheraton Imperial Kuala Lumpur Hotel, KL Global Financial Crisis: Fundamental Causes and Remedies 1. Fundamental causes of the crisis 2. Swift impacts of the crisis 3. Consequences of the crisis 4. Remedies 2 1

2 1. Fundamental Causes of the Crisis 1.1 Global macroeconomic imbalance - -- the real cause of the crisis The industrialized West consumed too much The rest of the world, particularly Asia produced too much 1.2 Free flow of capital in the global financial market helped facilitating and accumulating the imbalances Global macroeconomic imbalance % 36 Gross National Savings as Percent of GDP Emerging and developing economies Advanced eonomies Source: IMF 4 2

3 1.1 Global macroeconomic imbalance (cont) Current Account Balances, US$Bn Developing Asia + Middle East United States Source: IMF Global macroeconomic imbalance (cont) Most Asian countries have adopted an export-oriented strategy. 1960s 1970s 1980s 1990s NIEs ASEAN China India, Indochina, etc., Two third of final exports ended up in the West Soft currency policy of Asia prevented trade adjustment by market forces 6 3

4 1.1 Global macroeconomic imbalance (cont) Network of world merchandise trade (%), 2007 Asia, 24.2 North America, 18.5 Middle East, 3.5 Africa, 2.6 CIS, 2.9 South and Central America, 3.3 Europe, 43.7 Source: WTO Free flow of capital Huge FX reserves of Asia were mainly invested in the West FX reserves of Asia, excl. Japan and ME 3 US$Tn Major holders of FX reserves (Bn USD) China* Japan Taiwan India Korea Hong Kong Source: IMF , Japan China Hong Kong Taiwan Singapore Korea Thailand India Sub-total Share to grand total (%) Grand total Major Foreign Holders of US Treasury Securities, US$Bn (Holding at end period) , , , , , ,

5 1.2 Free flow of capital (cont) Open financial market of the West Freedom of financial transactions Incentive system encouraging short term gains Adam Smith financial market needs to be more regulated than other markets Nature and structure of the financial market made the accumulation of huge reserves possible 9 2. Swift Impacts of the Crisis The start of serious debt default problem 9/15/ The fall of Lehman Brothers Collapses of the global capital market Havoc in the money market, interest spread went up Exchange rates went haywire 10 5

6 2. Swift Impacts (cont) Stock indexes DAX Dow Jones FTSE 100 Nikkei Swift Impacts (cont) Money market spread 6 5 LIBOR-OIS Spread US LIBOR 3 mths Fed Target Rate /12/2001 4/3/2002 4/6/2002 4/9/2002 4/12/2002 4/3/2003 4/6/2003 4/9/2003 4/12/2003 4/3/2004 4/6/2004 4/9/2004 4/12/2004 4/3/2005 4/6/2005 4/9/2005 4/12/2005 4/3/2006 4/6/2006 4/9/2006 4/12/2006 4/3/2007 4/6/2007 4/9/2007 4/12/2007 4/3/2008 4/6/2008 4/9/2008 4/12/2008 4/3/

7 2. Swift Impacts (cont) Exchange rates Exchange Rates per US$ /1/2007 2/2/2007 2/3/2007 2/4/2007 2/5/2007 2/6/2007 2/7/2007 2/8/2007 2/9/2007 2/10/2007 2/11/2007 2/12/2007 2/1/2008 2/2/2008 2/3/2008 2/4/2008 2/5/2008 2/6/2008 2/7/2008 2/8/2008 2/9/2008 2/10/2008 2/11/2008 2/12/2008 2/1/2009 2/2/2009 2/3/2009 2/4/2009 2/5/2009 euro (EUR)-LH U.K. pound sterling (GBP)-LH Japanese yen (JPY) - RH Source: IMF Consequences of the Crisis Impacts to real sector Damage Tn $ Housing Bubble CDO/CDS Damage Bn $ Recap Fin In Liquidity Problem Perfect Storm New / Re-entry NPL Real Sector Problem Fin In Damage??? Tn$ Problem Damage??? Tn $ Damage 2-3 Tn $ Lay off Credit cards Mortgage Hire purchase Bankruptcy 14 7

8 3. Consequences (cont) World trade volume drops World trade growth (%) ? Source : EIU Remedies Present --- all forms of stimulus packages have been adopted Fiscal stimulus as % of GDP, Other emerging markets Latin America Euro Area United States Rest of Asia Japan China* * Including public infrastructure financed by banks Source: The Economist, May 13,

9 4. Remedies (cont) GDP Growth (%) World Advanced economies United States Euro Area Japan Developing Asia China India Malaysia Thailand Source: IMF Remedies (cont) Prospects Global macroeconomic must be more balance Global financial market must be more stable An opportunity for a real change 18 9

10 4. Remedies (cont) Reforms and changes for Asia Invest more in infrastructure, education and health care Increase the share of intra-asia trade Bigger role of state enterprises Support a more regulated finance regime Develop more on money and capital market Asia savings for Asia investment We can come out of this crisis with a more sustainable economic development for all of us, and the rest of the world 19 10