The Philippines in the Asian financial crisis: How the sick man avoided pneumonia

Asian Survey

Volumn 40, Issue 3, 2000, Pages 401-412

  Noland, Marcus ^a  

^a Inst of International Economic Law   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ECONOMIC REFORM; FINANCIAL CRISIS; MARKET CONDITIONS;

PHILIPPINES;

EID: 0033832025     PISSN: 00044687     EISSN: None     Source Type: Journal    
DOI: 10.2307/3021153     Document Type: Article

References (25)

1. For a more detailed discussion of these theories and literature references, see Marcus Noland, LiGang Liu, Sherman Robinson, and Zhi Wang, Global Economic Effects of the Asian Currency Devaluations, rev. ed. (Washington, D.C.: Institute for International Economics [IIE], 1999). In some models, the panicked investors would not necessarily be foreign investors -domestic capital flight could be another source of large rapid international capital movements.
2. In principle, one could further try to separate "internal" and "external" sources of fundamental strength or weakness. However, in practice they are typically interrelated: for example, real exchange rate overvaluation often leads to lending booms in domestic non-tradables such as real estate.
3. Aaron Tornell, Common Fundamentals in the Tequila and Asian Crises, National Bureau of Economic Research (NBER), Working Paper Series, no. 7139 (Cambridge, Mass.: NBER, 1999); and Morris Goldstein, Carmen Reinhart, and Graciela Kaminsky, Leading Indicators of Financial Crises in the Emerging Market Economies (Washington, D.C.: IIE, forthcoming).
4. Aaron Tornell, Common Fundamentals in the Tequila and Asian Crises, National Bureau of Economic Research (NBER), Working Paper Series, no. 7139 (Cambridge, Mass.: NBER, 1999); and Morris Goldstein, Carmen Reinhart, and Graciela Kaminsky, Leading Indicators of Financial Crises in the Emerging Market Economies (Washington, D.C.: IIE, forthcoming).
5. For a useful synopsis of Philippine economic policy in the period immediately preceding the crisis, see Romeo M. Bautista and Mario M. Lamberte, "The Philippines: Economic Developments and Prospects," Asian-Pacific Economic Literature 10:2 (November 1996), pp. 16-31.
6. On this point, see Marvin Barth and Trevor Dinmore, Trade Prices and Volumes in East Asia Through the Crisis, International Finance Discussion Papers, no. 643 (Washington, D.C.: Board of Governors of the Federal Reserve System, August 1999).
7. Goldstein, Reinhart, and Kaminsky, Leading Indicators.
8. John Williamson and Molly Mahar, A Survey of Financial Liberalization, Essays in International Finance, no. 211 (Princeton, N.J.: International Finance Section, Department of Economics, Princeton University, November 1998).
9. Paul D. Hutchcroft, Booty Capitalism: The Politics of Banking in the Philippines (Ithaca, N.Y.: Cornell University Press, 1998).
10. Fritz-Krockrow argues that more general macroeconomic instability (particularly high and variable inflation) discouraged saving and hampered financial intermediation, especially the development of long-term financial instruments. See Bernhard Fritz-Krockrow, "Saving and Financial Intermediation in the Philippines," EXIM Review 19:2 (July 1999), pp. 88-110.
11. Ibid.
12. Williamson and Mahar, A Survey of Financial Liberalization.
13. In this regard, the prescient response by former finance minister Jesus P. Estanislao to a question posed at a May 15, 1997, lecture bears repeating: In the case of Thailand, two critical sectors have been weakened because of over-capacity: real estate and banking. Real estate suffers from over-capacity: too many units have been built in relation to actual and potential demand. The financial sector, which was over-extended to the real estate sector, suffers from a high rate of past due loans in their overall loan portfolio. In the Philippines, the real estate sector is far from being overbuilt. The occupancy rate in prime commercial areas is very high, at more than 95%, and real estate as a sector accounts for less than 15% of the loan portfolio of the banking system. In fact, based on all the information available, both confidential and non-confidential, the Philippines banking system is solid. See Jesus P. Estanislao, The Philippine Economy: An Emerging Asian Tiger, Asia & Pacific Lecture Series, no. 1 (Singapore: Institute of Southeast Asian Studies, 1997), p. 28.
14. Paul D. Hutchcroft, "Neither Dynamo nor Domino: Reforms and Crises in the Philippine Political Economy" in The Politics of the Asian Economic Crisis, ed. T. J. Pempel (Ithaca, N.Y.: Cornell University Press, 1999).
15. See, for example, Allan Drazen, "Contagious Currency Crises" (College Park: Center for International Economics, University of Maryland, 1997, processed); Paul R. Krugman, "Currency Crises" (Cambridge, Mass.: Department of Economics, Massachusetts Institute of Technology, 1997, processed); and Guillermo A. Calvo and Enrique G. Mendoza, "Rational Herd Behavior and the Globalization of Securities Markets," Journal of International Economics (forthcoming).
16. See, for example, Allan Drazen, "Contagious Currency Crises" (College Park: Center for International Economics, University of Maryland, 1997, processed); Paul R. Krugman, "Currency Crises" (Cambridge, Mass.: Department of Economics, Massachusetts Institute of Technology, 1997, processed); and Guillermo A. Calvo and Enrique G. Mendoza, "Rational Herd Behavior and the Globalization of Securities Markets," Journal of International Economics (forthcoming).
17. See, for example, Allan Drazen, "Contagious Currency Crises" (College Park: Center for International Economics, University of Maryland, 1997, processed); Paul R. Krugman, "Currency Crises" (Cambridge, Mass.: Department of Economics, Massachusetts Institute of Technology, 1997, processed); and Guillermo A. Calvo and Enrique G. Mendoza, "Rational Herd Behavior and the Globalization of Securities Markets," Journal of International Economics (forthcoming).
18. Reuven Glick and Andrew Rose, Contagion and Trade, NBER Working Paper Series, no. 6806 (Cambridge, Mass.: NBER, 1998); Hyuk Choe, Bong-Chan Kho, and René Stulz, "Do Foreign Investors Destabilize Stock Markets?" (Columbus, Ohio: Ohio State University, January 1999, processed); and Woochan Kim and Shang-Jin Wei, Foreign Portfolio Investors Before and During a Crisis, NBER Working Paper Series, no. 6968 (Cambridge, Mass.: NBER, 1999).
19. Reuven Glick and Andrew Rose, Contagion and Trade, NBER Working Paper Series, no. 6806 (Cambridge, Mass.: NBER, 1998); Hyuk Choe, Bong-Chan Kho, and René Stulz, "Do Foreign Investors Destabilize Stock Markets?" (Columbus, Ohio: Ohio State University, January 1999, processed); and Woochan Kim and Shang-Jin Wei, Foreign Portfolio Investors Before and During a Crisis, NBER Working Paper Series, no. 6968 (Cambridge, Mass.: NBER, 1999).
20. Reuven Glick and Andrew Rose, Contagion and Trade, NBER Working Paper Series, no. 6806 (Cambridge, Mass.: NBER, 1998); Hyuk Choe, Bong-Chan Kho, and René Stulz, "Do Foreign Investors Destabilize Stock Markets?" (Columbus, Ohio: Ohio State University, January 1999, processed); and Woochan Kim and Shang-Jin Wei, Foreign Portfolio Investors Before and During a Crisis, NBER Working Paper Series, no. 6968 (Cambridge, Mass.: NBER, 1999).
21. Noland et al., Global Economic Effects.
22. Again, it is worth quoting Estanislao's pre-crisis statement on this point: Having been burned by the foreign debt problem of the 1980s, we in the Philippines are taking a very conservative stance toward foreign financing. We go for long-term bonds, and where possible also for equity finance from abroad. That is why we have been very active in the bond market as well as the equity market. We are so much less reliant on short-term commercial bank funding, from which we have been shying away. Estanislao, The Philippine Economy, p. 35.
23. Japanese banks reduced their exposure to the rest of Asia by an estimated $30 billion in 1998, accounting for roughly 30% of the net capital outflow the region experienced in 1998. By 1999, nearly half of the Japanese banks that had been operating in Asia in mid-1997 had pulled out.
24. At the time of the crisis, the Philippines was the only large Southeast Asian economy under an IMF program, which may have acted as a crude signal for foreign investors to proceed with caution, despite the notion that an agreement with the IMF is sometimes regarded as something akin to a macroeconomic "Good Housekeeping Seal of Approval."
25. Goldstein, Reinhart, and Kaminsky, Leading Indicators.