©1999 International Monetary Fund

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O C C A S I O N A L   P A P E R     
IMF-Supported Programs in Indonesia,
Korea, and Thailand
A Preliminary Assessment

Timothy Lane, Atish Ghosh, Javier Hamann, Steven Phillips
Marianne Schulze-Ghattas, and Tsidi Tsikata

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I   Overview
Timothy Lane and Marianne Schulze-Ghattas
II   Background to the Crisis
Javier Hamann
Financial Vulnerabilities
Macroeconomic Considerations
Asset Price Deflation and Bank Failures
III   Program Design
Timothy Lane
Basic Strategy
Exchange Rates
IV   Program Financing and Market Reactions
Timothy Lane and Marianne Schulze-Ghattas
Official Financing and Program Projections
Market Reactions
V   Macroeconomic Environment
Timothy Lane and Steven Phillips
Output Decline and Its Causes
Program Projections
VI   Monetary and Exchange Rate Policies
Atish Ghosh and Steven Phillips
Monetary Program Design and Implementation
   Program Design
   Program Implementation
Monetary Policy Stance
Appendix 6.1. Monetary and Exchange Rate Policies
VII   Fiscal Policy
Timothy Lane and Tsidi Tsikata
Initial Rationale for Fiscal Adjustment
   External Adjustment
   Bank Restructuring
What Was Done?
  Original Programs
  Revisions and Current Prospects
Appendix 7.1. Coverage of Reported Fiscal Accounts
Appendix 7.2. Fiscal Adjustment and Current Account Adjustment
Appendix 7.3. Financial Sector Restructuring Costs in the Fiscal Accounts
VIII   Structural Reforms
Javier Hamann and Marianne Schulze-Ghattas
Financial Sector and Corporate Restructuring
Governance and Competition Policy
Current and Capital Account Liberalization
Social Sector Policies
General Observations
IX   Taking Stock
Timothy Lane
I   1.1.  Thailand: Crisis and Adjustment
1.2.  Indonesia: The Deepening Crisis
1.3.  Korea: Crisis and Adjustment
IV   4.1.  Involving Private Sector Creditors
4.2.  Projected Private Capital Flows in the Three Programs
VI   6.1.  A Currency Board for Indonesia?
6.2.  High-Frequency Contagion in the Exchange and Equity Markets
6.3.  Episodic Evidence on the Interest Rate-Exchange Rate Relationship
6.4.  High Interest Rates in International Perspective
6.5.  Was There a Credit Crunch?
VIII   8.1.  The World Bank and the Asian Crisis
8.2.  Indonesia: Improving Governance and Competition
8.3.  Social Sector Policies in Indonesia, Korea, and Thailand
IV   4.1.Official Financing
4.2.  Exchange Rate Assumptions
VI   6.1.  Czech Republic, Mexico, and Sweden: Money and Credit Developments Surrounding Episodes of Devaluation or Depreciation
6.2.  Required Monetary Contraction to Offset Given Risk Premium Shocks
6.3.  Pass-Through Coefficients and Implied Expected Real Overnight Rates
6.4.  Effect on GDP Growth of a Decrease in Money Growth
VII   7.1.  Financing of Fiscal Deficits
7.2.  Fiscal Policy in Original Programs
7.3   .Sources of Changes in the Fiscal Balance
II   2.1   .Indonesia, Korea, and Thailand: External Debt and International Reserves
2.2.  Indonesia, Korea, and Thailand: Growth and Unemployment
2.3.  Indonesia, Korea, and Thailand: Exchange Rate Developments
2.4.  Indonesia, Korea, and Thailand: Competitiveness Indicators
2.5.  Indonesia, Korea, and Thailand: Central Government Balances
2.6.  Indonesia, Korea, and Thailand: Domestic Credit Expansion in Comparison to Nominal GDP Growth
2.7.  Indonesia, Korea, and Thailand: Stock Market Prices
V   5.1.Indonesia, Korea, and Thailand: Domestic and External Demand
5.2.  Indonesia, Korea, and Thailand: Components of Domestic Demand
5.3.  Indonesia, Korea, and Thailand: Net Exports
5.4.  Indonesia, Korea, and Thailand: Real GDP Growth
5.5.  Indonesia, Korea, and Thailand: Current Account Balance
5.6.  Consensus Forecasts and Program Forecasts of Real GDP Growth in 1998
5.7.  Indonesia, Korea, and Thailand: Consumer Price Inflation
VI   6.1.  Indonesia, Korea, and Thailand: Nominal Exchange Rates
6.2.  Indonesia, Korea, and Thailand: Reserve and Broad Money Growth, Initial Program Expectations and Outcomes
6.3.  Korea and Thailand: Differences Between Net International Reserves (NIR) and Net Domestic Assets Outturns and Performance Criteria
6.4.  Indonesia, Korea and Thailand: Expected Monthly Rates of Return in U.S. Dollar Terms
6.5.  Indonesia, Korea, and Thailand: Nominal and Estimated Real Interest Rates
6.6.   Indonesia, Korea, and Thailand: Money and Domestic Credit in Real Terms, July 1996­June 1998
VII  7.1.  Indonesia, Korea, and Thailand: Sectoral Savings-Investment Balances