Macroeconomic Adjustments of the East Asian Economies after the Crisis: A Comparative Study

Yoon Je Cho ; Changyong Rhee

Professor, Graduate School of International Studies, Sogang University, Seoul, Korea, Tel: +82-2-705-8682 yjcho@ccs.sogang.ac.kr
Associate Professor, School of Economics, Seoul National University, Seoul, Korea, Tel: +82-2-880-6365 rhee5@plaza.snu.ac.kr

JEL Classification: E20, E44, E63

Abstract

This paper examines the role of macroeconomic environment in the adjustment processes of the East Asian Crisis. It first reviews the macroeconomic development after the crisis in the five East Asian countries (Indonesia, Korea, Malaysia, the Philippines, and Thailand) and contrasts the degree to which each country has been affected by macroeconomic constraints. Based on that, it attempts to make assessments on what caused such a severe economic contraction and recent recovery in the region. Several policy implications follow out of our analysis. First, accommodative macroeconomic policies will be needed to continue for a while, perhaps until a clear sign of inflationary pressure develops, to prevent weakening of the corporate financial structure. Second, resumption of private capital flow will be an essential factor for the fast recovery of these economies. Third, more serious and comprehensive efforts are necessary to encourage the development of capital markets. Fourth, the IMF policy packages to be imposed on the future crisis-hit countries will be needed to be better tuned to individual market circumstances such as corporate leverage ratio, openness of the economy and etc.

Acknowledgments

The earlier version of this paper was presented at the World Bank Conference, “Asian Corporate Recovery:Corporate Governance and Role of Governments,” held in Bangkok, Thailand, March 31-April 2, 1999. The authors are grateful to Dominique Dwor-Frécaut, Mary Hallward-Dreimeier, Jae-Jung Kwon and the participants of World Bank Conference and SJE Conference in Seoul, August 1999, for valuable comments. They are also grateful to Chung-Chul Chung, Han Kyu Lee, Sam Ho Lee, and Sun Hyeong Lee for excellent research assistance. The second author wishes to thank the LG Yonam Foundation for financial support. However, all the remaining errors are the authors'.

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