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Experiences with Current Account Deficits in Southeast Asia

In: Current Account and External Financing

  • Ramón Moreno

    (Bank for International Settlements)

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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This chapter was published in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Current Account and External Financing, , chapter 14, pages 537-582, 2008.
This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v12c14pp537-582.
Handle: RePEc:chb:bcchsb:v12c14pp537-582
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  1. Bussière, Matthieu & Fratzscher, Marcel, 2002. "Towards a new early warning system of financial crises," Working Paper Series 0145, European Central Bank.
  2. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
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  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.
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