Friday, January 16, 2009

[IWS] ADB: US FINANCIAL CRISIS, GLOBAL FINANCIAL TURMOIL, & DEVELOPING ASIA: Is the Era of High Growth at an End? [online 16 January 2009]

IWS Documented News Service
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations
-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor
---------------------- Stuart Basefsky
New York, NY 10016
-------------------------------Director, IWS News Bureau

Asian Development Bank (ADB)
ADB Economics
Working Paper Series

The US Financial Crisis, Global Financial Turmoil, and Developing Asia: Is the Era of High Growth at an End? [online 16 January 2009]
William E. James, Donghyun Park, Shikha Jha,
Juthathip Jongwanich, Akiko Terada-Hagiwara, and Lea Sumulong
No. 139 | December 2008
[full-text, 85 pages]

The global economy is threatened with a deep and prolonged recession as a
consequence of the financial meltdown that began with the housing price crisis
in the United States. The financial implications of the global macroeconomic
imbalances that have persisted and enabled the housing bubble to develop
with the spread of toxic mortgage-backed securities first became apparent in
September and October 2008 with the collapse of major investment banks and
mortgage loan institutions, and the credit freeze and the panic that ensued in
global equity markets. This paper provides a summary of these events and
the transmission of the crisis from the United States to United Kingdom, the
eurozone, other industrial economies, emerging markets, and developing Asia.
Financial and real economy effects of the crisis on Asia and various channels
of transmission of the crisis are evaluated in some detail. In general, financial
institutions, particularly commercial banks in developing Asia are well prepared
to cope with this crisis as a result of reforms undertaken in response to the
Asian crisis of a decade ago, and the fact that Asia has accumulated vast
foreign exchange reserves through persistent current account surpluses. Still
the real economy effects of the global downturn are likely to be severe. A major
deterioration in economic growth in developing Asia in both the current and
the coming year is in the cards. Growth in world trade is likely to stall making
it difficult for export-oriented economies in the region to continue rapid growth
fueled by external demand. Rebalancing Asia's growth toward domestic demand
led by consumption, infrastructure investment, and improved health and social
security programs will be important in cushioning the impact of the recession
taking place in the industrial economies. This paper sets the context for the
Asian Development Outlook 2009 with an emphasis on rebalancing growth in
developing Asia and, by implication, the world economy.

Abstract v
I. Introduction 1
II. Anatomy of the US Financial Crisis 2
III. The Spread of the Crisis to Financial Markets 9
A. The Eurozone 10
B. United Kingdom 12
C. Canada 15
D. Australia 17
E. Japan 19
F. Emerging Markets: Russia and the Gulf States 22
IV. Asian Exposure to the Financial Turmoil 23
A. Asia's Direct Exposure to Subprime Assets 24
B. Impact on Asian Banking Systems 27
C. Impact through Equity Markets and US Dollar Debt Markets 39
V. The Real Economy at Risk 42
A. Trends in the Transmission of the Contagion
to the Real Sector in Asia 43
B. Recent Macroeconomic Performance of Developing Economies
in Asia 49
C. Prospects for Developing Asia amidst Economic Stagnation
in Industrial Countries 60
VI. Key Lessons for Asia 65
Appendix 72
References 74

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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
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