Real Exchange Rates and the Thai Baht Fiasco A. b. In the early 1990s, there was great confidence in the Southeast Asian countries, and there were substantial net capital inflows. However, in 1997 several diings oocuired in Thailand that precipitated the Southeast Asian currency crista: There was a growing government budget deficit. Evidence began to appear that commercial banks were conducting suspect lending practices There was growing concern over government corruption. There was growing concern over Thailand's ability to pay its foreign lond. There occurred a sharp decline in imports from neighboring countries and falling demand for Thai goods and services which pushed Thailand into a recession. Figure 6.3 below illustrates what happened to the Thai baht (e defined as dollars per baht) As a result of these five events. Carefully describe how Figure 6.3 illustrates each of tho ubove events (e) to (o). 0. d. e. Pigare 6.3: Tho Thai Cries NCO NCO Real atchange mta, NX NX Amount of belt HEADLINES Is the IMF "Pathetic"? This article considers the IMP's role and effectiveness as a tender of last resort. Background Following the Asian crisis in 1997 and Argentina's crises in 2001, politicians have continued to blame the IMF for the extent of the crises. Kort and other East Asian countries have responded by stockpiting currency re- serves as a cushion, avoiding the need for IMF bailouts. Recent IMF policy decisions have led some to support abolishing the institution. IMF lending has decreased from $81 billion in 2004 to $11.8 billion in March 2007. Turkey accounted for 75% of the IMF's loan portfolio. Key points # John Lipsky said, "It's ironic to my mind that people say the fund isn't needed any more because nothing in the global financial system is broken at the moment." His column argues that both the IMF and World Bank are needed. The IMF was not set up to handle crises in the 1990s, but it can be called upon the instant a crisis spreads from one country to another, as a sort of Fire brigade." The columnist describes the IMF as a paramedic. Although things may go wrong before and after the IMF intervenes during a crisis, it has the potential to im- prove the situation. Persistent global imbalances suggest the IMF may be needed in the near future, Discussion questions As private financial flows increase in volume do you believe the IMF will have the financial resources to serve as a lender of last resort for advanced econe as? The end of the column cites persistent U.S. current account deficits and the fact that several emerging markets have stockpiled reserves to avold future currency crises, How would you evaluate the probability of default in these emerging mar- kets, relative to what they were 15 years ago? How would you evaluate the U.S. probability of default? Why might the United States soll be less likely to default. compared with an emerging market country? Real Exchange Rates and the Thai Baht Fiasco A. b. In the early 1990s, there was great confidence in the Southeast Asian countries, and there were substantial net capital inflows. However, in 1997 several diings oocuired in Thailand that precipitated the Southeast Asian currency crista: There was a growing government budget deficit. Evidence began to appear that commercial banks were conducting suspect lending practices There was growing concern over government corruption. There was growing concern over Thailand's ability to pay its foreign lond. There occurred a sharp decline in imports from neighboring countries and falling demand for Thai goods and services which pushed Thailand into a recession. Figure 6.3 below illustrates what happened to the Thai baht (e defined as dollars per baht) As a result of these five events. Carefully describe how Figure 6.3 illustrates each of tho ubove events (e) to (o). 0. d. e. Pigare 6.3: Tho Thai Cries NCO NCO Real atchange mta, NX NX Amount of belt HEADLINES Is the IMF "Pathetic"? This article considers the IMP's role and effectiveness as a tender of last resort. Background Following the Asian crisis in 1997 and Argentina's crises in 2001, politicians have continued to blame the IMF for the extent of the crises. Kort and other East Asian countries have responded by stockpiting currency re- serves as a cushion, avoiding the need for IMF bailouts. Recent IMF policy decisions have led some to support abolishing the institution. IMF lending has decreased from $81 billion in 2004 to $11.8 billion in March 2007. Turkey accounted for 75% of the IMF's loan portfolio. Key points # John Lipsky said, "It's ironic to my mind that people say the fund isn't needed any more because nothing in the global financial system is broken at the moment." His column argues that both the IMF and World Bank are needed. The IMF was not set up to handle crises in the 1990s, but it can be called upon the instant a crisis spreads from one country to another, as a sort of Fire brigade." The columnist describes the IMF as a paramedic. Although things may go wrong before and after the IMF intervenes during a crisis, it has the potential to im- prove the situation. Persistent global imbalances suggest the IMF may be needed in the near future, Discussion questions As private financial flows increase in volume do you believe the IMF will have the financial resources to serve as a lender of last resort for advanced econe as? The end of the column cites persistent U.S. current account deficits and the fact that several emerging markets have stockpiled reserves to avold future currency crises, How would you evaluate the probability of default in these emerging mar- kets, relative to what they were 15 years ago? How would you evaluate the U.S. probability of default? Why might the United States soll be less likely to default. compared with an emerging market country