Main Messages of Chapter 1

1
Main Messages of Chapter 1

• World in 1.5 slowdown
• Outlook for export earnings and financing
  difficult
• All developing regions decelerate in 98/99
  compared to 97
• Recession possible, and risks mutually reinforcing

2
Growth of industrial and developing country GDP,
1970-2003(f)
Percent
1998-2003 projection
Note GDP measured in constant 1987 prices and
exchange rates. Source World Bank data and
projections, November 1998.
3
World export growth3-month moving average,
y/ywith projections 1999/2000

1999/2000 projection
Source Datastream and DECPG staff estimates
4
Change in terms of trade as proportion of GDP,
1998
Source World Bank estimates.
5
Net long-term private flows to developing
countries, 1980-98(e)
Billions of U.S. dollars
Source World Bank data.
6
Spreads on Brady Bonds and U.S. high yield bonds,
January 1995-October 1998
basis points
Source World Bank.
7
Annual GDP growth in developing regions, 1997-99
Percent
Note Real 1987 dollars. Source World Bank
data and projections, November 1998.
8
Low-case scenario output effects across regions,
1999Difference in 1999 growth rate from baseline
projection
Source World Bank estimates, November 1998.
9
Main Messages of Chapter 2

• we were dealing with a different type of crisis
  than 1980s debt crisis
• the appropriate policy responses were probably
  quite different
• looking forward, supportive macro and corporate
  and debt restructuring keys
• policies to protect the poor needed to have been
  given a bigger role

10
Debt Service Ratios were low or falling, 1982 and
1996
11
The Critical Vulnerability Private Short Term
Debt to Reserves

• ST Debt to Reserves in East Asia rose rapidly
  between 1994-97, exceeding 100
• In LAC, they were falling

12
Economies in Tailspin Private investment in
Thailand and Korea, 1990-98
Index 1991 Q1 1
Onset of crisis
Growing financial fragility
Source Datastream.
13
Estimates of non-performing loans, capital asset
ratios, and costs of recapitalizing banking
systems
Note NPLs are mid-points of ranges cited in
source recapitalization assumes 8 capital asset
ratios. Source J.P. Morgan 1998b.
14
Social Consequences Lessons

• Interests of poor should have been more central
• Social safety nets not a substitute, but critical
• Ex-ante social safety nets needed

In millions
In millions
In percentage
15
Main Messages of Chapter 3

• Crisis prevention is now key
• Risks of crisis amplified by interaction of many
  causal factors
• Need to adapt the pace of financial
  liberalization to institutional capability

16
Incidence of financial crises, 1970-97
Source Caprio and Klingebiel 1996a, Frankel and
Rose 1996, and Kaminsky and Reinhart 1997.
17
Cumulative loss of output per crisis for
industrial and emerging economies
Percent of GDP
Note Only crises with output losses are
represented. Source IMF 1998b.
18
Net capital flows to Mexico, 1990-96
Millions of U.S. dollars
Source IMF, World Bank.
19
Economic growth and capital account
liberalization in 100 countries, 1975-89
Note The figure is a partial scatter plot
(controlling for per capita income, secondary
education, quality of governmental institutions,
and regional dummies for East Asia, Latin
America, and Sub-Saharan Africa. Source Rodrik
1998.