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Experiences With Current Account Deficits in Southeast Asia

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  • Ramon Moreno

Abstract

In the 1990s, Southeast Asia experienced very rapid growth along with large and persistent current account deficits. The episode lasted from 1990 to around 1996, ending up with the outbreak of the Asian crisis in 1997–98. The current account reversals to surpluses were associated with sudden stops in capital inflows. These inflows significantly exceeded current account deficits in the first half of the 1990s; however they had not yet recovered their pre-crisis levels by 2006. The Southeast Asian sudden stop episode was also associated to sharp contractions in output that were unprecedented in Asia over the sample period. These declines in output were followed by relatively quick recoveries but permanently lower growth rates. This paper documents and analyzes the historical experience of Southeast Asian countries regarding their current account deficits. This experience illustrates how high growth rates can be associated with significant external and domestic vulnerabilities. It is suggested that for these countries’ experience, high rates of investment spending driving the current account cycle and increasing financial fragility were key determining factors.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 452.

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Date of creation: Dec 2007
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Handle: RePEc:chb:bcchwp:452

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  1. Raghuram G. Rajan & Luigi Zingales, 1998. "Which Capitalism? Lessons Form The East Asian Crisis," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(3), pages 40-48.
  2. Fratzscher, Marcel & Matthieu Bussiere, 2003. "Towards A New Early Warning System of Financial Crises," Royal Economic Society Annual Conference 2003 81, Royal Economic Society.
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  4. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," NBER Working Papers 5437, National Bureau of Economic Research, Inc.
  5. Stiglitz, Joseph E, 1996. "Some Lessons from the East Asian Miracle," World Bank Research Observer, World Bank Group, vol. 11(2), pages 151-77, August.
  6. Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Harvard Institute of Economic Research Working Papers 1759, Harvard - Institute of Economic Research.
  7. Koh, Winston T.H. & Mariano, Roberto S. & Pavlov, Andrey & Phang, Sock Yong & Tan, Augustine H.H. & Wachter, Susan M., 2005. "Bank lending and real estate in Asia: market optimism and asset bubbles," Journal of Asian Economics, Elsevier, vol. 15(6), pages 1103-1118, January.
  8. Ramon Moreno, 1997. "Lessons from Thailand," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov7.
  9. Drine, I. & Rault, Ch., 2004. "Does the Balassa-Samuelson Hypothesis Hold for Asian Countries?. An Empirical Analysis using Panel Data and Cointegration Tests," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 4(4).
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