# Asian crisis and the blocked Asian Monetary Fund The regional spillover: Thailand’s capital opening, the baht crisis, private inflows, Japan’s blocked Asian Monetary Fund proposal, Malaysia’s capital controls, Korea’s reflation, and the new central-bank clubs. *This story parallel: Regional pacts and communities* *This story parallel: The IMF, the World Bank, and the developing world* *This story part of: Princes of the Yen: Japan built, bubbled, and broken* *This story part of: Infrastructure and logistics* *Keynesian economics: demand, depression, and the fight over full employment parallel this story* ## 1991 — EMEAP central bank club formed In 1991 the eleven central banks of the East Asia and Pacific region formed the Executives' Meeting of East Asia-Pacific Central Banks (EMEAP), a low-profile club whose deputy governors met twice a year. > "Already in 1991, the eleven central banks of the East Asia and Pacific region formed an exclusive club, called the Executives’ Meeting of East Asia-Pacific Central Banks, or EMEAP." > — Princes of the Yen ## 1993 — Thailand deregulates capital account and creates the BIBF In 1993 Thailand aggressively deregulated its capital account and established the Bangkok International Banking Facility, allowing Thai corporations and banks to borrow from abroad for the first time in the postwar era; Korea and Indonesia adopted similar policies around the same time. > "In that year, Thailand implemented a policy of aggressive deregulation of the capital account and the establishment of the Bangkok International Banking Facility (BIBF). This banking facility enabled the corporate and banking sector to borrow liberally from abroad—the first time in the postwar era that Thai borrowers could do so." > — Princes of the Yen ## 19 July 1996 — Landmark EMEAP governors meeting in Tokyo On July 19, 1996, the Bank of Japan hosted a landmark meeting of all EMEAP governors in Tokyo, after which cooperation tightened to include annual governor-level meetings and working groups, with the Bank of Japan as temporary secretariat. > "Since a landmark meeting of all the governors hosted by the Bank of Japan in Tokyo on July 19, 1996, cooperation has been tightened further." > — Princes of the Yen ## 1997 to 1998 — Asian currency crisis erupts In 1997 the currencies of key Southeast Asian countries collapsed by 60 to 80 percent against the dollar, and Thailand, Korea, and Indonesia, facing possible national default, sought IMF emergency funding; their economies deteriorated throughout 1998. > "In 1997, the currencies of the key Southeast Asian countries could not maintain their fixed exchange rates with the U.S. dollar. They collapsed by between 60 and 80 percent within the year." > — Princes of the Yen ## 1997 — Asian financial crisis In 1997 investors pulled out of Korea, Thailand, and Indonesia while central banks forced commercial banks to restrict credit; the asset bubbles burst and by late 1997 all three countries were insolvent. > "In 1997, investors pulled out. Simultaneously, the central banks forced the commercial banks to restrict credit creation. The bubbles burst." > — Princes of the Yen ## May 1997 — Thai baht crisis breaks in Bangkok The baht crisis broke in Bangkok in May 1997, prompting Thailand's leaders to seek bridge financing rather than IMF intervention. > "Soon after the baht crisis broke in Bangkok in May 1997, the Thai finance minister and the prime minister felt that they should simply borrow some more money to bridge the temporary balance-of-payments crisis and implement a bailout program." > — Princes of the Yen ## c. 1997 — Washington blocks Japan's Asian Monetary Fund proposal After Japan proposed an Asian crisis fund, with vice finance minister Sakakibara suggesting an Asian Monetary Fund to bypass the IMF, the United States forced Tokyo to withdraw the initiative and also barred Taiwan from lending to its neighbors. > "But Washington stopped Japan’s initiative. It unambiguously let Tokyo know that it was not allowed to rescue its Asian neighbors. Any solution to the emerging Asian crisis had to come from Washington via the IMF." > — Princes of the Yen ## 1998 — Bank of Korea reflates sharply In mid-1998 the Bank of Korea increased credit creation by the largest amount in twenty-five years, and Korean growth expanded sharply in the first quarter of 1999 with double-digit industrial production gains by mid-1999. > "Credit creation by the Bank of Korea in mid-1998 shot up by the biggest amount in twenty-five years—quite parallel to the BoJ’s reflation. As a result, Korean economic growth expanded sharply in the first quarter of 1999." > — Princes of the Yen ## 21 May 1998 — Suharto resigns amid the Asian crisis After the Asian financial crisis wrecked Indonesia's economy and mass protests filled the streets, Suharto steps down after more than three decades in power. His fall opened the way for democratic reform and, later, independence for East Timor. Investigations put the wealth taken by his family and circle among the largest of any modern ruler. ## 17 August 1998 — Russia defaults on domestic debt On August 17, 1998, Russia defaulted on its domestic debt as the Asian crisis spread to other emerging markets, with Brazil soon teetering on the verge of collapse. > "On August 17, 1998, Russia defaulted on domestic debt. Next, Brazil teetered on the verge of collapse." > — Princes of the Yen ## September 1998 — Mahathir imposes capital controls in Malaysia In September 1998 Malaysian leader Mohammad Mahathir imposed controls on short-term capital movements, stabilizing the exchange rate while the central bank stepped up credit creation and the government cleaned up bank balance sheets without IMF-style reforms. > "But in September 1998, Mahathir imposed controls on short-term capital movements and hence stabilized the exchange rate. Simultaneously, his central bank stepped up credit creation and the government implemented a program to clean up the balance sheets of banks." > — Princes of the Yen ## September 1998 — New York Fed organizes LTCM bailout At the end of September 1998, New York Fed chairman William McDonough summoned the heads of major Wall Street and European banks and organized a cartel-like bailout of the failing hedge fund LTCM, averting a full-blown default. > "At the end of September, William McDonough, the chairman of the New York Fed, summoned some of the most powerful men of world finance to the boardroom on the tenth floor of the New York Federal Reserve." > — Princes of the Yen ## May 1999 to June 1999 — Asian leaders call for currency union In May 1999 the head of the Hong Kong Monetary Authority argued that Asia should move toward currency union, a call endorsed in June 1999 by the president of the Philippines. > "The head of the Hong Kong Monetary Authority argued in May 1999 that Asia should move toward currency union. This was endorsed in June 1999 by the president of the Philippines." > — Princes of the Yen ## 26 September 1999 — Founding of the G20 G7 finance ministers announce a new Group of Twenty of major advanced and emerging economies after the Asian financial crisis, with an inaugural meeting in Berlin that December. It became a leaders' summit in 2008.