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September
1999
(Issue No. 111)
Synopsis:
Asia's Currency Crisis: Between
Forex Market Inadequacies and Currency Vulnerability
by Dr Obiyathulla Ismath Bacha, Associate Professor and
Director of the Management Center, International Islamic University Malaysia
This paper attempts to analyse the Asian currency crisis within
a framework of forex market inadequacies and macroeconomic variables. It is
argued that the crisis had causal factors rooted in both forex market
inadequacies and weakened macro variables. Forex market players including
international banks, experiencing a bout of anxiety had reversed capital flows
thereby causing currencies and economies to crash. Given the forex market
structure and operation, this should not be surprising.
The forex market lacks some of the controls and measures for
market correction that is readily found in other asset markets. In the absence
of an organised structure and controls such as margins, position limits,
reportable positions and price limits there is little to prevent markets from
spinning out of control nor to bring it back in line when it does. Though the
forex market is highly efficient with regard to providing up to the minute
information on price quotes and market information, information regarding trade
size, exposures taken by players, their identity etc are lacking. This is
informational asymmetries.
Aside from forex market weaknesses, the crisis countries
clearly had deteriorated fundamentals. Aggressive growth policies financed by
reflationary strategies and foreign capital had meant highly leveraged domestic
economies and currency vulnerability. In the presence of information
asymmetries, rational behaviour on the part of each player to be ahead of the
others to hit the exits, can lead to stampedes and self-fulfilling crisis.
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Banking Reform in the Republic of
Korea and Thailand
by Marc Proksch, Economic Affairs Officer, ESCAP
When the East Asian financial crisis erupted in mid-1997, the
fundamental weaknesses of the financial system in general and the banking
system in particular in the crisis-hit Asian countries were revealed. While the
crisis had resulted from a complex interplay of various factors, there is now
widespread consensus that fundamental and systemic problems in the banking
sector in countries like Indonesia, Republic of Korea, Malaysia and Thailand
have been a main, if not the main, cause of the crisis and the extent of its
severity in those countries. Hence, the urgent need for structural and
regulatory reform of the banking system is now a priority issue for governments
of those countries. This paper seeks to briefly outline the main aspects of
banking reform and track as well as evaluate the major banking reforms
undertaken in the Republic of Korea and Thailand.
Indonesia: From Political
Transition to Economic Transformation
by Dr John Vong, Drs Soekardi Hoesodo (Deputy Chairman,
Financial and Development Supervisory Board, Indonesia) and Tham Kou Chau
(Senior Research Analyst, The Leader Consulting Pt Ltd., Singapore)
This paper looks at the policy measures implemented in
Indonesia in the aftermath of the region¡¯s financial crisis. The writers
conclude that financial sector reform by itself seems inadequate. It should be
complemented by structural transformation that not only changes the existing
systems and practices in the political, economic and social agenda. It must, in
the writers/ opinion, be accompanied by a positive change in attitudes toward
corporate accountability and good governance of private and public
institutions.
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Corporate Insolvency Laws: Are
They Adequate for Today's Corporate Environment?
by Kenneth The, Executive Director,
PricewaterhouseCoopers Malaysia
The appointment of receivers and liquidators or foreclosures
under the National Land Code, depending on the security held by the lenders,
were the usual routes taken by lenders to effect recovery of their corporate
loans. To that extent, insolvency laws contained in the Companies Act, 1965
appear to be adequate, although there are still aspects of the legislation that
require streamlining with other pieces of legislation.
The economic boom of the 1990s has brought about a
significantly different corporate and lending scenario, for example, (1) loans
are larger, and partially secured or even unsecured in many cases; (2) large
numbers of lenders; (3) business portfolios have changed, where there are many
companies engaged in large infrastructure projects with long development lead
times and longer periods for financial returns; (4) companies with businesses
extending the national border.
When the current economic downturn started in late 1997, the
impact of the changes in the corporate and lending landscape caught many
lenders by surprise. Both borrowers and lenders alike were looking for
alternative recovery options and solutions beyond the traditional receivership
and liquidation approach in order to preserve potentially viable businesses and
thus improve recovery of debts in the longer term. This paper looks at the
adequacy of the Malaysia¡¯s legislation dealing with corporate insolvency,
particularly on the issue of restructuring.
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Technical Efficiency of Commercial Banks in Malaysia
by M. Nasser Katib, Lecturer, School of Economics,
Universiti Utara Malaysia
The purpose of this investigation is to apply a non-parametric
approach, Data Envelopment Analysis (DEA), to measure technical efficiency of
commercial banks in Malaysia. The DEA method has been applied on a panel of 20
commercial banks from 1989 to 1995. The results show that on the average the
banks do not efficiently combine their inputs. The findings suggest that over
the period of observation, average technical efficiency ranges from 68% to 80%.
Most commercial banks do not operate at constant returns to scale and that
technical inefficiency is attributed to scale inefficiency.
Odds of Success and Failure: 20 Years
of IPOs
by Steven M. Dawson, Professor of Finance, University
of Hawaii
Investors, issuers and lenders all have an obvious interest in
the variability of initial public offer (IPO) returns as well as the odds of
success or failure. This paper provides the historical record on Malaysian IPOs
for 20 years ¨C 1979 to 1999 ¨C to enable readers to see how the IPOs performed
relative to others, and what might be anticipated if history were a guide to
the future. As the trading period lengthened, year-end prices for almost
one-quarter of the IPOs were below their offer prices. More than half of the
539 IPOs studied ended the year below their opening day's price
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