CRS Report


Dick K. Nanto, Specialist in Industry and Trade Economics Division

February 6, 1998


The Asian financial crisis involves four basic problems or issues: (1) a shortage of foreign exchange that has caused the value of currencies and equities in Thailand, Indonesia, South Korea and other Asian countries to fall dramatically, (2) inadequately developed financial sectors and mechanisms for allocating capital in the troubled Asian economies, (3) effects of the crisis on both the United States and the world, and (4) the role, operations, and replenishment of funds of the International Monetary Fund.

The Asian financial crisis was initiated by two rounds of currency depreciation that have been occurring since early summer 1997. The first round was a precipitous drop in the value of the Thai baht, Malaysian ringgit, Philippine peso, and Indonesian rupiah. As these currencies stabilized, the second round began with downward pressures hitting the Taiwan dollar, South Korean won, Brazilian real, Singaporean dollar, and Hong Kong dollar. Governments have countered the weakness in their currencies by selling foreign exchange reserves and raising interest rates, which, in turn, have slowed economic growth and have made interest-bearing securities more attractive than equities. The currency crises also has revealed severe problems in the banking and financial sectors of the troubled Asian economies.

The International Monetary Fund has arranged support packages for Thailand, Indonesia, and South Korea. The packages include an initial infusion of funds with conditions that must be met for additional loans to be made available.

This financial crisis is of interest to the U.S. government for several reasons. First, attempts to resolve the problems are led by the IMF with cooperation from the World Bank and Asian Development Bank and pledges of standby credit from the Exchange Stabilization Fund of the United States. Second, financial markets are interlinked. What happens in Asian financial markets also affects U.S. markets. Third, Americans are major investors in the region, both in the form of subsidiaries of U.S. companies and investments in financial instruments. Fourth, the currency turmoil affects U.S. imports and exports as well as capital flows and the value of the U.S. dollar; the U.S. deficit on trade is now rising as these countries import less and export more. Fifth, the crisis is causing economic turmoil that is exposing weaknesses in many financial institutions in Asia; some have gone bankrupt. The economic problems of the troubled Asian economies are adversely affecting the United States, Japan, and others.

The U. S. Congress is likely to consider the Asian financial crisis within three broad legislative contexts. The first is in the financing and scope of the activities of the IMF. This includes legislation to provide the IMF with an increase in its quotas or capital subscriptions, New Arrangements to Borrow, an allocation of Special Drawing Rights, and an amendment to the IMF's Articles of Agreement. The second legislative context is in the impact of the crisis on the U.S. economy and American financial institutions. Forecasters foresee a decline in U. S. growth and an increase in the U.S. trade deficit because of the crisis. The third context is in efforts to liberalize trade and investment in the world.

Chronology of the Asian Financial Crisis

The 1997-98 Asian Financial Crisis


The Asian financial crisis involves four basic problems or issues: (1) a shortage of foreign exchange in Thailand, Indonesia, South Korea and other Asian countries that has caused the value of currencies and equities to fall dramatically, (2) inadequately developed financial sectors and mechanisms for allocating capital in the troubled Asian economies, (3) effects of the crisis on both the United States and the world, and (4) the role, operations, and replenishment of funds of the International Monetary Fund.

The crisis was initiated by two rounds of currency depreciation that began in early summer 1997. The first round was a precipitous drop in the value of the Thai baht, Malaysian ringgit, Philippine peso, and Indonesian rupiah (see Figure 1). As these currencies stabilized at lower values, the second round began with downward pressures hitting the Taiwan dollar, South Korean won, Brazilian real, Singaporean dollar, and Hong Kong dollar. (See Figure 2.)In countering the downward pressures on currencies, governments have sold dollars from their holdings of foreign exchange reserves, bought their own currencies, and have raised interest rates to foil speculators and to attract foreign capital. The higher interest rates, in turn, have slowed economic growth and have made interest-bearing securities more attractive than equities. Stock prices have fallen. In November 1997, this decline in stock values was transmitted to other stock markets in the world, although U. S. and European markets have subsequently recovered.

This financial crisis is of interest to the U.S. government for several reasons. First, financial markets are interlinked. What happens in Asian financial markets also may affect U.S. markets. Second, American banks and companies are significant lenders and/or investors in the region, in terms of bank loans, subsidiaries of U. S. companies, and investments in financial instruments. Third, attempts to resolve the problems have been led by the International Monetary Fund (IMF) with cooperation from the World Bank and Asian Development Bank. Some legislative issues dealing with IMF funding and operations were deferred by the 105* Congress at the close of its recent session. In 1998, Congress is considering New Arrangements to Borrow by the IMF, a proposed increase in IMF quotas or capital subscriptions, and a proposed amendment to the IMF's Articles of Agreement. Congress also may intensify its oversight U.S. activities in the IMF.

The fourth reason that the Asian financial crisis is of interest to the United States is that the turmoil affects U.S. imports and exports as well as capital flows and the value of the U.S. dollar. The U.S. deficit on trade is now rising as these countries import less and export more. Fifth, the crisis is exposing weaknesses in many financial institutions in Asia. Some have gone bankrupt. The economic problems of the so-called Asian Tigers not only are adversely affecting the economies of Japan and others in the region, but, to some extent, an economic slowdown could spread to Latin America and the United States. Sixth, the crisis may impede the progress of trade and investment liberalization under the World Trade Organization and the Asia Pacific Economic Cooperation (APEC) forum.

So far, the International Monetary Fund has arranged support packages for Thailand, Indonesia, and South Korea, and extended and augmented a credit to the Philippines to support its exchange rate and other economic policies. The three support packages are summarized in Table 1. The total amounts of the packages are approximate because the IMF lends funds denominated in special drawing rights (SDRs), and because pledged amounts may change as circumstances change. The support package for Thailand was $17.2 billion, for Indonesia about $40 billion, and for South Korea $57 billion. The United States pledged $3 billion for Indonesia and $5 billion for South Korea from its Exchange Stabilization Fund (ESF) as a standby credit that may be tapped in an emergency. The U. S. Treasury lends money from the ESF at appropriate interest rates and with what it considers to be proper safeguards to limit the risk to American taxpayers.

The support packages are initiated by a request from the country experiencing financial difficulty. This request then requires an assessment by IMF officials of the conditions in the requesting nation. If a support package is approved, the IMF usually begins with an initial loan of hard currency to the borrowing nation. Subsequent amounts are made available (usually quarterly) only if certain performance targets are met and program reviews are completed. If the financial situation continues to deteriorate, commitments for funds that have been pledged by the World Bank, Asian Development Bank and certain nations may be tapped. The funds borrowed by the recipient country usually go into the central bank' s foreign exchange reserves. These reserves are used to supply foreign exchange to buyers, both domestic and international.

        Table 1. IMF Financial Support Packages                
              (Amounts in U.S.$Billion)
                      Thailand                 Indonesia                     South Korea
Date Approved 
               (1997)August 20                   November 5                     December 4

Total Pledged           $17.2                      $40                          $57
IMF                      $3.9                      $10.1                        $21.0
U. S.                    None                      $ 3.0                         $5.0
World Bank               $1.5                      $ 4.5                        $10.0
Asian Development        $1.2                      $ 3.5                        $ 4.0
Bank  Japan              $4.0                      $ 5.0                        $10.0
Others                   $6.6                      $26.0                        $ 7.0

Change in Exchange Rate   -38%                      -81%                         -50%
 (7/1197- 1/22/98)           
Change in Stock Market    -26%                      -40%                         -30%

Source: International Monetary Fund, Dialogue Database, Wall Street Journal, Financial Times.

In addition to support packages by the IMF, other international organizations have been addressing the Asian financial crisis. On November 3-5, 1997, the Group of Fifteen developing nations met in Malaysia and developed a plan to avert renewed currency turbulence. In preparation for the Asia Pacific Economic Cooperation (APEC) summit meeting, senior finance officials of APEC met in Manila on November 18-19 and developed a framework for dealing with financial crises in the region. This Manila Framework was endorsed by the eighteen leaders of the economies of APEC at the forum's annual summit in Vancouver, BC, on November 25, 1997. The Manila Framework recognized that the role of the IMF would remain central and included enhanced regional surveillance, intensified economic and technical cooperation to improve domestic financial systems regulatory capacities, adoption of new IMF mechanisms on appropriate terms in support of strong adjustment programs, and a cooperative financing arrangement to supplement, when necessary IMF resources. 1

On December 1, 1997, the finance ministers of the Association of Southeast Asian Nations (ASEAN-Indonesia, the Philippines, Singapore, Thailand, Malaysia, Myanmar, Brunei, Laos, and Vietnam) agreed to make additional funding available for any future bailouts for troubled economies in the region. It would be provided only if a country accepted an IMF support package and if ASEAN members consider IMF funds to be inadequate.2 On December 15, 1997, ASEAN heads of state endorsed the Manila Framework, efforts of the IMF, decided to develop a regional surveillance mechanism that would emphasize preventive efforts to avoid financial crises, and reaffirmed their commitment to maintain an open trade and investment environment in ASEAN.3

The IMF and Stabilization Packages

The International Monetary Fund has been the key player in coordinating support packages for the troubled Asian economies. The IMF says that it has learned from the Mexican Peso crisis in 1995 and had instituted emergency procedures that enabled it to respond to each the crises in each Asian country in record time.

The major objectives of the IMF are to promote stability, balanced expansion of trade, and growth, but because of the Asian financial crisis, it has deepened its activities in four directions.4 They are:

Bank Borrowing and Lending

The financial difficulties in Asia stemmed primarily from the questionable borrowing and lending practices of banks and finance companies in the troubled Asian economies. Companies in Asia tend to rely more on bank borrowing to raise capital than on issuing bonds or stock. Governments also have preferred developing financial systems with banks as key players. This is the Japanese model for channeling savings and other funds into production rather than consumption. With bank lending, the government is able to exert much more control over who has access to loans when funds are scarce. As part of their industrial policy, governments have directed funds toward favored industries at low rates of interest while consumers have had to pay higher rates (or could not obtain loans) for purchasing products that the government has considered to be undesirable (such as foreign cars). A weakness of this system is that the business culture in Asia relies heavily on personal relationships. The businesses which are well-connected (both with banks and with the government bureaucracy) tend to have the best access to financing. This leads to excess lending to the companies that are well-connected and who may have bought influence with government officials.

For example, Figure 6 outlines the lending system in South Korea. Korean banks and large businesses borrow in international markets at sovereign (national) rates and re-lend the funds to domestic businesses. The government bureaucrats often can direct the lending to favored and well-connected companies. The bureaucrats also write laws regulating businesses, receive approval from the parliament, write the implementing regulations, and then enforce those regulations. They have had great authority in the Korean economic system. The politicians receive legal (and sometimes illegal) contributions from businesses. They approve legislation and use their influence with the bureaucrats to direct scarce capital toward favored companies. 31

International borrowing involves two other types of risk. The first is in the maturity distribution of accounts. The other is whether the debt is private or sovereign. As for maturity distribution, many banks and businesses in the troubled Asian economies appear to have borrowed short-term for longer-term projects. Many economists blame such loans for the Asian crisis.32 Some of this debt is to finance trade and is self-extinguishing as the trade transactions are completed. Mostly, however, these short-term loans have fallen due before projects are operational or before they are generating enough profits to enable repayments to be made, particularly if they go into real estate development.

As long as an economy is growing and not facing particular financial difficulties, rolling over these loans (obtaining new loans as existing ones mature) may not be particularly difficult. Competition among banks is intense. In the Asian case, as U. S. banks began to restrict lending in certain Asian countries in 1996 and 1997, European banks took up much of the slack. When a financial crisis hits, however, loans suddenly become more difficult to procure, and lenders may decline to refinance debts. Private-sector financing virtually evaporates for a time.33

Figure 7 shows the total amount borrowed by selected Asian countries and the distribution of the maturities on those accounts. For the six Asian countries shown, all have relied heavily on debt with a maturity of one year or less. At the end of 1996, the proportion of loans with maturity of one year or less was 62% for Indonesia, 68% for South Korea, 50% for the Philippines, 65% for Thailand, and 84% for Taiwan.

A structural change in the nature of the borrowing by these Asian countries is that the type of borrowing has shifted away from the government and banks borrowing from international financial institutions (such as the World Bank) or receiving development assistance funds through foreign aid programs to borrowing by private corporations.

Figure 8 shows the distribution of borrowing from banks according to the type of borrower. Until capital markets were liberalized in the newly industrializing countries of Asia, most of the outside funds flowing into these economies was borrowed by the governments (public sector). Now major banks and the non-bank private sector account for most of the borrowing.

A problem with private sector borrowing in developing market economies is that while individual borrowers may have viable projects, when all borrowing is aggregated and demands for foreign exchange and repayment are tallied, the country can face difficulties. It is a type of fallacy of composition. Even if each individual loan is financially viable, the total of all loans may not be so because the nation may be short of the foreign exchange necessary to meet the repayment schedules.

Although Japan is not considered to be one of the Asian economies experiencing a currency crisis, it has been experiencing many of the same problems that are confronting its Asian neighbors. Japan's banking sector, for example, carries an estimated $600 billion in questionable and nonperforming loans despite aggressive writeoffs in recent years.34 When world attention began to be focused on Japan's problem of nonperforming bank loans, its government first announced in 1994 that the total amount of such loans was about $136 billion. A year later, it admitted that the total was more like $400 billion or about 9% of gross national product. Private analysts, however, put the figure at roughly double that amount.35 Since 1992, the top 20 Japanese banks have written off approximately 35 trillion yen (about $290 billion) in bad loans.36 Still, the combination of the weak Japanese stock market, weak real estate values, and sluggish economy continues to threaten Japan' s banks as well as securities companies.

Although the currency crisis has not affected mainland China's renminbi to a large extent, China still has the potential of experiencing a major financial crisis. The problem began in 1981 when the government changed the banking system from one in which banks financed investments and provided funds to enterprises as part of the government's central plan to one based more on banking principles. Banks were to provide funds only as loans rather than as investments and were to charge interest and require repayments. Suddenly, the flow of funds from the banks to state-owned enterprises became liabilities that had to be repaid.

China's four state-owned specialty banks do 75% of the nation's deposit and loan business. Data on the condition of these banks is sketchy, but in late 1994, the four banks reported over 570 billion yuan (about $68 billion) in bad loans or about 20% of all the loans they had issued. Overdue loans were 11.3%, idle loans 7.7% and uncollectible loans 1.3%. These accounted for 90% of the officially recognized bad loans in the banking system.37 These figures, however, are likely to be understated because the state-owned banks have been lending to state-owned enterprises, and only about 30% of those enterprises are profitable, 20% have been losing money for years and are beyond salvaging, and the remaining 50% are somewhere in between.38

The state-owned banks, therefore, have accumulated a huge portfolio of bad debts that have little prospect of being repaid. As was pointed out at a conference in Beijing in January 1997, China's national economy is being threatened by a latent monetary credit crisis. Furthermore, even though loans now are supposed to be allocated according to sound banking principles, in practice a large amount of monetary assets is still being allocated ineffciently through administrative and planned economic channels. State-owned banks have been required to provide loans to support enterprises which are running at low profit rates or at a loss. These are "loans for preservation of stability and unity" and "loans for clearing up defaults." The resultant depletion of assets of state-owned banks has become an important factor threatening their own survival.39

Bank Exposure

How exposed are the banks of the major industrial countries to borrowers in these Asian economies? Table 2 shows the international claims (loans) of all reporting banks in the United States, United Kingdom, Germany, Japan, and the world with respect to selected Asian countries involved in the financial crisis. Bank lending data pose a particular problem because of offshore banking centers, such as Aruba, the Bahamas, Hong Kong, and Singapore. Often the banks in these centers simply provide a conduit for funds that ultimately are used outside the center. Table 2, therefore, shows two sets of totals: one for countries and one for offshore banking centers. (The two sets of data are not completely compatible.)

At the end of 1996, the U.S. banks reported $29.1 billion in loans outstanding to Indonesia, South Korea, Malaysia, the Philippines, Taiwan, and Thailand. There was an additional $14.4 billion loaned to Hong Kong and Singapore for a total of $57.9 billion. This amounted to 34.9% of all U.S. international lending (including offshore banking centers). The greatest U.S. exposure was in Hong Kong and South Korea. As for other major lending countries the United Kingdom reported 50.8% of its loans to these eight Asian economies and Germany 33.6%. Table 2. International Claims (Loans) by Banks in Selected Developed Nations on Borrowers in Troubled Asian Economies December 31, 1996 ($Millions)

       Claims on        by-            U.S.    U K. Germany    Japan     World 

       Indonesia                      5,279   3,834   5,508  22,035   55,523 

       South Korea                  9,355   5,643   9,977  24,324   99,953 

       Malaysia                         2,337   1,417   3,857   8,210   22,231 

       Philippines                      3,902   1,173   1,820   1,558   13,289 

       Taiwan                           3,182   2,773   2,628   2,683   22,363 

       Thailand                         5,049   3,128   6,914  37,525   70,181 

       Total Above Asia            29,104  17,968  30,704   96,335     283,540   

Asian Offshore Banking Centers 

Hong Kong                       8,665  26,216  26,811  87,462  207,164           

Singapore                          5,727  22,523  40,767  58,809  189,310           

Total Asian Offshore          4,392  48,739   67,578     146,271   396,474           

Total Asia + Asian            57,888  66,707  98,282  242,606     680,014            

Offshore Centers           

Total World                     130,053  68,325  173,101  169,699   993,134            

Total Offshore                    35,617  63,024 119,170  219,690     663,897           

Banking Centers           

Total World +                  165,670  131,349 292,271 389,389   1,657,031           

Offshore Centers           

Asia as % of World                34.9      50.8        33.6     62.3       41.0           

(Including Offshore           Banking Centers)  

Note: Data are for lending which is outside of the home market (does not include domestic lending). Data from offshore banking centers are not completely compatible with BIS reporting country data. Source: Bank for International Settlements. The Maturity, Sectoral and Nationality Distribution of International Bank Lending. Second Half 1996. Basle, Switzerland, July 1997. P. 19-20.

Japan's bank exposure was particularly high. It reported 62.3% of its international lending to these Asian countries. In the offshore centers, Japan reported $87.5 billion in Hong Kong and $58.8 billion in Singapore. For Thailand, Japan reported $37.5 billion in claims, and more than $20 billion each in Indonesia and South Korea.

The U. S. Federal Financial Institutions Examination Council provides more recent data that those available through the Bank for International Settlements (BIS) used above. BIS data also have been adjusted somewhat to eliminate double counting and to be consistent across reporting nations. The Council data indicate that U.S. bank claims in these Asian economies declined after December 1996 from $45.2 billion for these eight Asian economies to $41.9 billion as of June 30, 1997. This amounted to 0.2% of total U.S. banking assets of $2,552.5 billion and 1.5% of total banking capital of $272.8 billion.40 It appears that U.S. banks had become aware of the increasingly risky loan environment in Asia and in 1997 had been reducing exposure accordingly.

U.S. banks do not seem to be excessively exposed to the Asian economies suffering from currency weaknesses. This is a vastly different picture than was presented at the onset of the Latin American debt crisis in August 1982. In December 1982, U.S. banks were owed $24.4 billion by Mexico alone. This amounted to 34.6% of their total capital and about 2.0% of their total assets. 41

In addition to dollar-denominated claims, the U. S . Federal Financial Institutions Council also reported that U. S. banks have claims for loans in local currencies that do not appear in BIS statistics. As of June 30, 1997, these loans amounted to $1,403 million in Hong Kong, $74 million in Indonesia, $1,150 million in Malaysia, $1,567 million in Philippines, $1,288 million in Singapore, $1,363 million in Taiwan, and $2,023 million in Thailand.

Pegged Exchange Rates

The structural factor that initially enabled the crisis to occur was that the exchange rates of most of these currencies had been aligned with the dollar or a basket of currencies dominated by the dollar. These pegged exchange values had not been allowed to adjust sufficiently in response to changing economic conditions. Governments allowed their exchange rates to fluctuate only within narrow bands.

The advantage of this system to the countries involved was that it kept the countries' exchange rates relatively constant with respect to the dollar and allowed their traders to import from and export to dollar areas, particularly the United States, with little exchange rate risk. It also provided a stable financial environment that encouraged foreign sources of capital for loans or investments. The Thai monetary authorities, for example, had pursued a "stable baht" policy that had kept the official rate for their currency at about 25 baht per dollar since 1987. This linking of official exchange rates to the dollar, however, had one major drawback. As the value of the dollar changed, so did the value of these currencies relative to others, such as the Japanese yen and German mark, that were not tied to the U.S. dollar. As the dollar depreciated after 1985, the arrangement worked reasonably well, even though macroeconomic conditions in these countries differed widely from those in the United States (particularly, rates of inflation and growth). Problems began to arise in 1996 and 1997, however, as the dollar appreciated and the official values of these currencies deviated from their underlying market values. While the dollar was pulling up the value of these currencies, some of the countries in question encountered increasing difficulty in balancing their international accounts. Their exports grew more costly to non-dollar buyers, and their imports from non-dollar areas cheaper. The weak yen, in particular, was reducing the competitiveness of their products relative to those from Japan. The consequent rising deficits in their trade and current accounts placed downward pressure on their exchange rates which required more and more government intervention to maintain.

When downward pressures on a currency occur in foreign exchange markets, if the exchange rate is allowed to adjust freely, an initial depreciation tends to lessen pressures for more depreciation. The rewards for speculating in the market (by betting on a future depreciation) diminish. With an exchange rate tied to the dollar, however, government attempts to maintain the rate often raise the expectations of traders that the currency is headed for a fall. This places even more downward pressure on the currency as traders rush to sell it in anticipation that they will be able to buy it later at a lower price. If the governments involved do not have sufficient foreign exchange reserves to stave off the speculators and others in the market, they eventually have to concede failure and allow the currency to depreciate. When that process begins, the fall in the currency may be quite dramatic and may overshoot the equilibrium rate.

Currency depreciation, in turn, places an additional burden on local borrowers whose debts are denominated in dollars. They now are faced with debt service costs that have risen in proportion to the currency depreciation. These debtors respond to the weakening currency by attempting to hedge external liabilities which intensifies exchange rate and interest rate pressures.42 In the South Korean case, for example, the drop in the value of the won from 886 to 1,701 won per dollar between July 2 and December 31, 1997, nearly doubled the repayment bill when calculated in won for Korea's foreign debts. The depreciated local currency, however, makes exports from the country cheaper and more competitive in foreign markets.

Nominal exchange rates also may change in response to differing rates of inflation among countries. A high inflation rate will cause a nation's currency to depreciate, but the real exchange rate (adjusted for inflation) may remain the same. In some of the Asian countries with currency problems, inflation rates have been higher than those in the United States. Still a depreciation of 20 or 30% far exceeds inflation rates in 1997 of about 3% in Malaysia and Taiwan, 5% in South Korea, and 7% in Indonesia, the Philippines, and Thailand.

As the Asian financial crisis has progressed, the affected governments (except for Hong Kong) have eased the rigidity of their exchange rate systems. Exchange rates now are allowed to move in wider bands, in a crawling band, or are floating. This flexibility reduces the potential for large and sudden changes in these exchange values, as the rates respond continuously and in smaller increments to market forces.

Government exchange rate policy suffers from a common policy dilemma. If a country targets its monetary and fiscal policy toward maintaining a specific exchange rate, it must sacrifice performance in its domestic economy. A government defending its exchange rate, for example, usually has to raise interest rates in order to attract capital into its economy. This tends to dampen its growth rate. Government policymakers do not have policy tools that enable them to target both an exchange rate and economic growth rate.

With respect to pegged exchange rates, however, there is an alternative school of thought that currency values should be pegged to gold or some other standard of value and kept stable.43 Those who view exchange rates in these terms may see the cause of the currency crises in the Asian countries as excessive expansion of domestic money supplies by central banks combined with burdensome government regulations, protection of domestic industries, and other government interference in the marketplace.44 Once governments stopped maintaining their exchange rates, investors lost confidence, and the crises began. Economic Growth

Most of the countries in Asia that now are encountering currency problems had logged remarkably high economic growth rates over the past decade. These high rates of growth brought higher standards of living but also brought problems. To one degree or another, most of these countries have been facing difficulties with their balance of payments, over-expansion of production capacity, rising real estate values, overvalued equities, and excessive bank lending. As of first quarter 1997 before the crisis began, the growth rates for these Asian countries had remained quite high, and the outlook was generally favorable. Any dramatic slowdown in growth had not yet appeared in their short-term outlook.

As shown in Figure 9, economic growth rates over the past decade for four countries involved in the first round of currency problems. The forecast for 1997 is as of the first quarter, before the currency crisis began. As can be seen, growth was slowing but still remained at remarkably high rates and was expected to continue in 1997. Thailand's economic growth rate had fallen from 13% in 1988 to 6.5% in 1996. In 1997, however, it was expected to recover from its downward slide.

The effect of a slowdown in growth on a nation's exchange rate is not immediately obvious. It affects both trade and capital accounts in opposite ways. On one hand, lower growth usually causes a nation's trade balance to improve, since imports decline relative to exports (unless demand in export markets is falling faster). This could strengthen a nation's currency. In the Asian case, however, growth was continuing at a level high enough that trade and current accounts tended to remain in deficit. Even in Thailand, the slowdown had not improved its balance of trade.

On the capital account side, a slowing growth rate generally causes problems for a nation's debtors who have borrowed to finance production facilities or have invested in real estate or equities and are faced with repayment schedules. Lower growth means lower demand, possible lower profits, and a leveling off or fall in real estate and stock values. As the slowdown intensifies, interest rates usually fall. This can cause international lenders to look elsewhere for investment for financing opportunities and may cause a weakening of a nation's currency. Recessions also cause loans to turn sour and may further drive away foreign lenders. As the Asian financial crisis has developed, forecasters have lowered their outlook for growth in these countries. The securities firm, J.P. Morgan, for example, lowered its forecast for economic growth for ASEAN (Indonesia, Malaysia, Singapore, Thailand, Philippines, Brunei, and Vietnam) for 1998 from 5.9% in June 1997 (before the crisis began) to 2.2% in November 1997.45 Forecasters expect economic growth in South Korea to drop from 5.9% in 1997 to around -1.5% in 1998.46 Current Account Imbalances

The high growth rates among the Asian countries had begun to create problems for them in balancing their current and trade accounts. The current account is a nation's balance of trade in imports and exports plus net income from foreign investments, and unilateral transfers. It consists of the payments for goods and services, interest and dividends, and remittances by foreign workers to their home countries. Figure 10 shows current account balances for four of the Asian nations that have had to depreciate their currencies. (Comparable data for Malaysia were not available from the IMF.) In the case of Thailand, its deficit in its current account had been widening from 1992. In 1996, the deficit had grown to $14.7 billion for the year. As a percent of gross domestic product, this deficit had reached 8%. The IMF considers that when current account deficits reach 5 to 8% of GDP, they merit close monitoring. 47 This deficit was the primary reason for the downward pressure on the baht. By the time Thai authorities tightened economic policies, investors-both foreign and domestic-were pulling funds out of the country, and the currency crisis had already developed.

South Korea's current account deficit also worsened considerably in 1996. For the year, it was $23.1 billion. The current account deficit for the Philippines, on the other hand, had shrunk somewhat. Capital Flows

The primary reason that the deteriorating current account balance for these nations had not placed severe downward pressures on their exchange rates earlier was that foreign capital was flowing in from other countries. Foreign investors, businesses establishing manufacturing subsidiaries, international banks lending to local borrowers, and others were providing a steady stream of foreign exchange and a positive balance on financial account. This tended to offset the current account deficits.

As shown in Figure 11, in 1996, South Korea ran a surplus in its financial account of $24.0 billion that completely offset its deficit of $23.1 billion in its current account. Much of the surplus in Korea's financial account came from portfolio investments. In 1996, while Koreans invested $2.4 billion in foreign equity and debt securities, foreigners invested $16.8 billion in Korea securities. Portfolio investments can be volatile. Funds can flow out as fast as they flow in. In October 1997, for example, as trouble developed in the Hong Kong and other stock markets, investors began to flee Korean equity markets. Over the weekend of October 25 following the fall in the Hong Kong stock market, foreign investors sold 20.1 billion won ($22 million) worth of Korean stocks. This started a rush out of Korean securities that sent the composite index of stock values on the Seoul exchange to a ten year low of 450.6 on November 24, 1997, down 30% for the year.

The experience of the Asian newly industrializing countries reflects a major structural change in international capital markets that has occurred over the past decade. This has been the liberalization of capital flows into and out of most emerging market economies. Borrowers and investors are able to bypass governments and local financial institutions and seek funds from a variety of world sources. Private capital in the form of bank lending, direct investments, and portfolio investments has flowed into these economies. Whereas a decade ago, most capital inflows into emerging markets were from official sources, now private investment flows far exceed official development assistance or other government-based finance.

According to the U.S. Treasury, on a worldwide basis, capital flows into emerging market economies rose from $25 billion in 1986 to $250 billion in 1996. Between 1990 and 1996, the share of cross-border portfolio flows accounted for by these emerging markets rose from 2% to 30 /O, while their share of global foreign direct investment jumped from 15% to 40% 48

For South Korea, for example, aggregate foreign investment inflows (both portfolio and direct investment) from January 1962 to April 1997 totaled $21.6 billion. Of this amount, $5.6 billion came from Japan, $6.7 billion from the United States, $5.3 billion from the European Union, $3.6 billion from other sources.49

According to Alan Greenspan, Chairman of the U.S. Federal Reserve, "In retrospect, it is clear that more investment monies flowed into these economies than could be profitably employed at modest risk."50 One impetus behind these flows was the run up in the U.S. stock market and the desire of investors to diversify their holdings. Much of the direct investment went toward building production capacity -some of which may be unused as these economies slow. Weak Governmental Institutions

The rapidity with which the Asian economies have grown and liberalized their financial markets has meant that the development of the financial systems in some economies has not kept pace with development of the financial markets. To varying degrees, there have been lax lending standards, weak supervisory regimes, inadequate capitalization, excessive inter-connected lending, and a more general lack of a credit culture.51 Safety nets such as deposit insurance has been lacking in some countries. Problems have developed, and governments often have hid the true extent of those troubles.

One concern has been lack of skilled manpower. Analysts point out that as private banks and other financial institutions have developed in these Asian tiger economies, they frequently have gone to government bureaucracies and hired away officials with the skills and experience necessary to run their companies. Foreign banks, in particular, have been faced with the dual problem of not having the skilled personnel necessary for their operations and needing someone on staff who is familiar with the bureaucracy and has the connections necessary to work with government officials. An important source of such personnel has been the government finance ministries and other agencies. This exodus of skilled officials in some of the countries exacerbated the problem of regulating the rapidly developing financial sectors. Speculation

The role of currency speculation in the 1997 Asian currency crisis has been sharply debated. Malaysian Prime Minister Mahathir has blamed large foreign investment funds, particularly hedge fund manager George Soros, for attacks in the marketplace on the Malaysian ringgit and other currencies in order to generate profits for themselves without regard to the livelihood of the Malaysian or other local people. At a meeting of the International Monetary Fund in Hong Kong on September 20, 1997, Mahathir said that currency trading (other than to finance trade) was immoral and should be stopped. He castigated the traders as being responsible for the drop in the ringgit and the resultant loss in (dollar-denominated) per capita income in Malaysia.52

Given recent trends toward liberalizing flows of goods and capital among nations and progress in telecommunications and electronic trading, opportunities for speculation in currencies have proliferated. Even though foreign exchange markets originally developed primarily to serve importers and exporters, the vast majority (more than 95%) of current transactions in these markets is for capital transactions. These transactions are done by companies, investors, fund managers, speculators, and others who are moving in and out of foreign currencies for reasons not directly related to international trade. These capital transactions are determined by underlying monetary policies, expectations, investment opportunities, and government regulations.

The mammoth size of world exchange markets make them virtually impossible for governments to control, or for most, to influence significantly. When governments do intervene, they have discovered that they can only "lean against the wind" (they can slow down movements in exchange markets but rarely can change their direction). Central banks, such as the Bank of Thailand and Bank of Korea, have drawn their foreign exchange reserves down to perilous levels by trying to maintain their exchange rates.

Still speculators say that they only exploit gaps between actual and potential exchange rates. These gaps arise because of changes in market expectations as well as the underlying fundamentals of an economy. The U.S. Treasury maintains that short-term speculative flows were not the major source of the pressures on governments that caused the Asian financial crisis.53 Financial Market Technology

Changes in the technology of financial markets have occurred both in the types of financial instruments available and in the integration of financial markets world wide. Combined with the spread of electronic fund transfers, telecommunications, and the Internet, funds now are able to flow from one country to another quickly and in large quantities. This has increased the speed and extent to which disturbances in one market can affect another. As one economist put it in the fall of 1997, six months ago, no one would have expected real estate loan defaults in Thailand to raise interest rates in Estonia.54 Few also would have expected a drop in the Hong Kong market to trigger a run on stocks on Wall Street.

The U.S. Federal Reserve stated that the contagion effect of weakness in one economy spreading to others has been troublesome to them. If one economy has a problem, investors search for other economies that might have similar vulnerabilities. The resultant pressures on exchange rates or drops in stock values may or may not be warranted by economic fundamentals. Even Hong Kong with its ample stocks of foreign reserves, balanced external accounts, and relatively robust financial system was not immune from such pressures.55

Issues for Congress The U.S. Congress is likely to consider the Asian financial crisis within three broad legislative contexts. The first is in the financing and scope of the activities of the IMF and other international financial institutions. The second is in the impact of the crisis on the U.S. economy and American financial institutions, and the third is in efforts to liberalize trade and investment in the world.

The primary legislative issues revolve around the International Monetary Fund. The most important of these is a request for an increase in the U. S . capital contribution to the IMF, that is, in its so-called "quota."56 Quotas provide the IMF with the financial resources from which it extends loans to economically troubled countries. In addition to determining the size of the IMF's capital and member's contributions, quotas also determine a member country's voting power, its access to IMF loans, and its share in any allocation of Special Drawing Rights (SDRs). Quotas, therefore, are fundamental to the IMF's operation.57

On September 21, 1997, the Interim Committee of the IMF announced an agreement to increase overall IMF quotas by 45%. This was finalized in late December 1997 and adopted on February 6, 1998. Total IMF quotas would increase from about SDR 146 billion (about $197 billion, as of April 9, 1998) to SDR 212 billion ($287 billion).

The U.S. quota would increase by 40%, from SDR 26.5 billion ($35.8 billion) to SDR 37.1 billion ($50.2 billion), an increase of about $14.4 billion. At the same time, the U.S. share of total IMF quotas would drop from 18.1% to 17.5%. The United States would retain its veto on important IMF decisions, including any decision to increase quotas, allocate SDRs, or amend the IMF's Articles of Agreement. The United States would also continue to be the IMF's largest shareholder, a position that gives it considerable voice in the decisions and operations of the IMF.

Historically, requests for the approval of an increase in the U.S. quota have always been the occasion for vigorous Congressional examination of the programs and policies of the IMF and oversight of the U. S. role there. The current financial crisis in Asia, with its spillover-effects on the U. S. economy and financial markets, is likely to heighten the rigor of congressional oversight, particularly with regard to the IMF's conditionality, its emergency financing mechanisms, and its surveillance and data dissemination procedures.

In addition to the request for approval of U. S. participation in the quota increase, Congress will be asked to reconsider and approve the "New Arrangements to Borrow" (NAB).58 The NAB are an arrangement of medium-term credit lines that the IMF may borrow against to supplement its resources in the event of an international financial crisis. They were proposed in the wake of the 1994 Mexican peso crisis. Commitments to the NAB from 25 participant amount to SDR 34 billion, currently about $46 billion. The U.S. share in the NAB totals SDR 6,712 ($9.0 billion), including SDR 4,250 million ($5.7 billion) that was authorized and appropriated prior to 1983 for U.S. participation in the "General Arrangements to Borrow" (GAB).59 Because of this earlier funding, only the incremental amount of SDR 2,462 million (currently $3.3 billion) need be approved for the United States to fulfill its NAB commitment. This issue was considered during the first session of the 105th Congress. In the midst of a controversy over abortion funding, however, provisions related to the NAB were stripped from the foreign operations appropriation for 1998 (P.L. 105-118).

Under the Bretton Woods Agreements Act (P.L. 79-171, 22 USC 286), both the increase in the U.S. quota in the IMF and U.S. participation in the NAB must be authorized by the U.S. Congress. In addition, current U.S. budgetary treatment requires that both be appropriated.60

The current financial crisis, ultimately, is also likely to connect with a number of other proposed issues related to the IMF. These include a proposed allocation of SDRs6' and a proposed amendment to the IMF's Articles of Agreement. The former would help to ease reserve constraints experienced by many IMF members. The latter, whose language has not yet been agreed, would provide the IMF with a mandate to foster capital account liberalization. The rising U.S. trade deficit combined with heightened competition from imports from countries with depreciated currencies may intensify political pressures to protect U. S. industries from foreign competition. Initiatives to liberalize imports or provide fast-track negotiating authority to the President may face higher hurdles. U. S .lending institutions that are highly exposed to the Asian financial problems also could develop problems of their own.

The Asian financial crisis also could put a damper on negotiations to liberalize trade and investment in Asian markets. Some of the countries affected have been reluctant to proceed with more trade and investment liberalization until they are able to regroup and recover from their current problems. FOOTNOTES:

1 Asia Pacific Economic Cooperation. APEC 97 Leaders Declaration. November 25, 1997. 2 Associate Press. Asian Officials Establish Supplementary Bailout Fund. AP Newswire. December 2, 1997. 3 ASEAN. Joint Statement of the Heads of State/Government of the Member States of ASEAN on the Financial Situation. December 15, 1997. Available on the Internet at . 4 Boorman, Jack. The Changing Emphasis of the Fund, Implications for Stabilization and Growth Policies. Paper presented at the IMF Seminar, Asia and the IMF. September 19, 1997. Hong Kong.

5 These questions are discussed in more detail in CRS Report 98-56, The International Monetary Fund 's (IMF) Proposed Quota Increase: Issues for Congress, by Patricia A. Wertman.

6 Boorman, Jack. The Changing Emphasis of the Fund, Implications for Stabilization and Growth Policies. Paper presented at the IMF Seminar, Asia and the IMF. September 19, 1997. Hong Kong.

7 South China Morning Post, January 8, 1998. P. 3.

8 Davis, Bob and David Wessel. World Bank IMF at Odds over Asian Austerity. Wall Street Journal, January 8, 1998. P. A5, A6.

9 See, for example, Sachs, Jeffrey. Power Unto Itself. Financial Times, December 11, 1997. P. 11.

10 The "Special Drawing Right" or SDR is an international reserve asset created by the IMF and used to denominate its accounts. In mid-1997 one SDR was worth $1.36.

1l International Monetary Fund. IMF Approves Stand-by Credit for Thailand. Press Release No. 97/37, August 20, 1997.

12 International Monetary Fund. IMF Approves Stand-by Credit for Indonesia. Press Release No. 97/50, November 5, 1997.

13 Sen, Siow Li. Singapore-Indonesia Deal to Support Rupiah Confirmed. Singapore Business Times (Internet edition), November 27, 1997.

14 As of December 1997, the United States had assets equivalent to about $30 billion, excluding SDRs and accounts receivable, in its Exchange Stabilization Fund (ESF). This was about 22% less than ESF assets of $38.2 billion as of December 31, 1994, at the onset of the Mexican Peso crisis. Mexico drew a total of $12.0 billion in short- and medium-term swaps from the ESF. Mexico also drew $1.5 billion in short-term swaps under lines of credit with the U.S. Federal Reserve. If activated, the standby credit line for Indonesia of $3.0 billion would equal about 10.1% of ESF assets at the end of March 1997. For background on the Exchange Stabilization Fund, see: CRS Report 95-262, The Exchange Stabilization Fund, by Arlene Wilson.

15 Summers, Lawrence, Testimony on the Asian Financial Crisis, November 13, 1997. 16 International Monetary Fund. IMF Approves SDR 15.5 Billion Stand-By Credit for Korea. Press Release No. 97/55, December 4, 1997. Reuters. Korean IMF Bailout. Reuters Newswire. December 3, 1997. Yoo, Cheong-mo. Korea, IMF Agree on Terms, Including Foreign M&A of Korean Firms, Ownership Limit Rise. Korea Herald, December 4, 1997. On Internet at . Note: A special drawing right (SDR) had a value of about 1.4 dollars.

17 Korea Bailout Conditioned On Structural Reforms. DowJones Newswire. December 3, 1997.

18 IMF, IMF Approves SDR 15.5 Billion Stand-By Credit for South Korea. 19 Summers, Lawrence, Testimony on the Asian Financial Crisis, November 13, 1997. 20 Statements by Representatives Barney Frank and Bernard Sanders at the House Banking Committee hearing on the Asian Financial Crisis, November 13, 1997 and January 30, 1998, and January 30, 1998.

21 International Monetary Fund. IMF Bail Outs: Truth and Fiction. January 1998. Available on the Internet at: .

23 U.S. Federal Reserve Board. Testimony of Chairman Alan Greenspan before the Committee on Banking and Financial Services, U.S. House of Representatives, January 30, 1998. Available on the Internet at .

24 Citicorp. Fourth Quarter Report. January 20, 1998. P. 1. 25 Bank of America. BanlcAmerica Fourth Quarter 1997 Earnings. January 21, 1998. P. 15. 24 Citicorp. Fourth Quarter Report. January 20, 1998. P. 1. 25 BankofAmerica. BanlcAmerica Fourth Quarter 1997 Earnings. January 21, 1998. P. 15.

26 J.P. Morgan. Fourth Quarter and 1997 Full Year Results. January 1998. P. 4. Available on Internet at .

27 Blue Chip Economic Indicators. January 10, 1998.

28 Trade in goods and services plus income from foreign investments and unilateral transfers.

29 Standard & Poor's DRl. Review of the U.S. Economy, January 1998. P. i.

30 Blue Chip Economic Indicators, January 10, 1998.

31 For further information on South Korea, see: CRS Report 98-13 E, South Korea's Economy and 1997 Financial Crisis, by Dick K. Nanto.

32 Uchitelle, Louis. Economists Blame Short-term Loans for Asian Crisis. New York Times on the Web. January 8, 1998. At

33 Fischer, Stanley. How to Avoid International Financial Crises and the Role of the International Monetary Fund. Speech given in Washington, DC, October 14, 1997.

34 See: CRS Report 96-837, Japan 's Banking "Crisis ": Bad Loans, Bankruptcy, and Illegal Activity, by Dick K. Nanto. Unrecoverable Loans Held by Banks Reaches Y79 Trillion. Nihon Keizai Shimbun, December 6, 1997 (morning edition). P. 1.

35 CRS Report 95-1034 E, Japan 's Banking Crisis: Causes and Probable Effects, by Dick K. Nanto.

36 Bad Loan Write-offs by Major Banks Total 35 Trillion Yen. Kyodo Newswire article. September 21, 1997.

37 He, Dexu. Key Financial Reform Goals. Jinrong Shibao. November 2, 1993. 38 Sun, Shuangrui. Subordinate Specialized Bank Commercialization to Enterprise Reform (In Chinese). Beijing Caimao Jingji, March 11, 1996. P. 7-13. 39 Xiong, Tang. Pool Collective Wisdom and Efforts to Explore New Ideas on Bank and Enterprise Reform-A Roundup of the Conference on the Strategy for Coordination of the Reforms of State-owned Enterprise and Bank Systems (in Chinese). Beijing Jinrong Shibao, January 5, 1997. p.3.

40 U.S. Federal Financial Institutions Examination Council. Country Exposure Lending Survey. June 1997. 41 U.S. Federal Financial Institutions Examination Council. Country Exposure Lending Survey. December 1982.

42 Camdessus, Michel. Lessons from Southeast Asia. Press briefing in Singapore, November 13, 1997.

43 See, for example, Kemmerer, Donald L. Why a Gold Standard and Why Still a Controversy. Committee for Monetary Research and Education. 1979. Available on the Internet at .

44 Johnson, Bryan T. and John Sweeney. Down the Drain: Why the IMF Bailout in Asia Is Wasteful and Won't Work. The Heritage Foundation Roe Backgrounder No. 1150, December 5, 1997.

45 JP Morgan. Global Data Watch. November 7, 1997. P. 1. 46 Standard and Poor's Data Resources, Inc. and (Korean) Economic Research Institute. On Internet at

47 Sugisaki, Shigemitsu. The Global Financial System: Status Report. Address at the 11th Conference of the International Federation of Business Economists, Vancouver, Canada. November 18, 1997.

48 Summers, Lawrence. Testimony on the Asian Financial Crisis before the House Committee on Banking and Financial Services. November 13, 1997.

49 The Economist Intelligence Unit. Country Report, South Korea, North Korea. Third Quarter 1997. P. 32.

50 Greenspan, Alan. Testimony on the Asian Financial Crisis before the House Committee on Banking and Financial Services. November 13, 1997.

51 Summers, Larry, Testimony on Asian Financial Crisis.

52 Mahathir, Mohamad. Asian Economies: Challenges and Opportunities. Speech given at the World Bank Group - International Monetary Fund Annual Meetings. September 20,1997. Hong Kong.

53 Summers, Lawrence, Testimony on the Asian Financial Crisis. 54 Hale, David. Seminar on the Asian financial crisis sponsored by the Economic Strategy Institute. November 5, 1997.

55 Greenspan, Alan, Testimony on Asian Financial Crisis, November 13, 1997. 56 Additional information on the proposed quota increase may be found in, U.S . Library of Congress. Congressional Research Service. The International Monetary Fund 's (IMF) Proposed Quota Increase: Issues for Congress, CRS Report 98-56 E, by Patricia A.Wertman.

57 This section was prepared primarily by Patricia A. Wertman, Specialist in International Trade and Finance, Economics Division.

58 For more details on the NAB, see U. S . Library of Congress. Congressional Research Service. The International Monetary Fund 's "New Arrangements to Borrow " (NAB), CRS Issue Brief 97038, by Patricia A. Wertman. Updated regularly.

59 Additional information on the GAB may be found in, U.S. Library of Congress. Congressional Research Service. The IMF's General Arrangements to Borrow (GAB): A Background Paper, CRS Report 97-467, by Patricia A. Wertman.

60 More details on U.S. budgetary treatment of the IMF may be found in, U. S . Library of Congress. Congressional Research Service. U.S. Budgetary Treatment of the International Monetary Fund. CRS Report 96-279 E, by Patricia A. Wertman.

61 On September 21, 1997, the Interim Committee of the Board of Governors of the IMF announced agreement on a one-time, targeted special allocation of SDR 21.4 billion(currently about $29.0 billion). This proposal would require congressional authorization, but no appropriation.

For more information on the allocation of SDRs, see U.S. Library of Congress. Congressional Research Service. The IMF's Proposed Special Drawing Rights' (SDRs) Allocation: A Background Paper, CRS Report 97-738 E, by Patricia A. Wertrnan.


 Table A1. Exchange Rates for Selected Asian Economies, 1997-98


Date   Indonesian Malaysian Philippine Thai Hong Kong Japanese South Korean Singaporean Taiwan

         Rupiah    Ringgit   Peso      Baht  Dollar     Yen         Won       Dollar    Dollar

Jan 3    2,362.9    2.52    26.25      25.7   7.74     116.32      841.3      	1.40      27.48

Jan 31   2,371.2    2.49    26.33      25.9   7.75     121.20      863.1       1.41      27.42

Feb 28   2,391.4    2.48    26.31      25.8   7.74     120.82      862.1       1.42      27.49

Mar 27   2,396.2    2.48    26.34      26.0   7.75     123.62      892.0   	1.45      27.51

Apr 25   2,429.9    2.51    26.35      26.1   7.74     126.04      890.7   	1.44      27.61

May 30   2,430.4    2.51    26.35      24.9   7.75     116.43      889.7   	1.43      27.85

Jun 27   2,430.9    2.52    26.35      24.0   7.75     114.72      885.9   	1.43      27.80

Jul 4    2,432.3    2.52    26.40      28.4   7.74     113.85      887.2   	1.44      27.85

Jul 11   2,439.3    2.50    27.00      29.6   7.75     113.92      888.2   	1.44      27.89

Jul 18   2,515.0    2.64    27.99      30.2   7.75     115.39      893.0   	1.47      27.91

Jul 25   2,603.6    2.64    28.50      31.9   7.74     116.77      890.1   	1.47      27.93

Aug l    2,620.9    2.64    28.90      32.1   7.74     118.40      887.6       1.48      28.71

Aug 8    2,604.3    2.69    28.30      30.9   7.74     114.91      892.7   	1.48      28.55

Aug 15   2,850.1    2.78    29.60      31.8   7.74     117.72      893.0   	1.52      28.60

Aug 22   2,678.0    2.77    29.60      33.5   7.74     117.01      898.1   	1.49      28.65

Aug 29   2,943.6    2.92    30.10      34.0   7.75     120.74      899.9   	1.51      28.62

Sep  5   2,916.5    2.94    31.79      34.8   7.75     120.93      904.0   	1.52      28.56

Sep 12   2,925.9    2.97    32.00      35.3   7.74     121.05      907.0   	1.51      28.SS

Sep 19   2,960.7    3.03    33.19      35.7   7.74     122.04      912.1   	1.52      28.56

Sep 26   3,085.7    3.14    33.31      34.7   7.74     120.74      912.7   	1.52      28.56

Oct  3   3,716.8    3.37    34.60      35.4   7.74     121.91      911.9   	1.54      28.58

Oct 10   3,392.8    3.11    32.89      35.7   7.74     119.93      912.8   	1.54      28.43

Oct 17   3,561.8    3.24    33.50      37.1   7.74     120.20      913.0   	1.55      28.99

Oct 24   3,534.7    3.39    35.00      38.7   7.73     121.96      927.1   	l.55      30.20

Oct 31   3,579.4    3.34    35.00      40.0   7.73     120.34      960.0   	1.57      30.71

Nov 7    3,283.9    3.30    34.60      38.3   7.73     124.18      974.7   	1.57      30.75

Nov 14   3,432.4    3.31    33.60      38.3   7.73     126.91      982.3   	1.58      31.05

Nov 21   3,541.7    3.42    34.00      38.7   7.73     125.82    1,051.0   	1.58      32.00

Nov 28   3,645.9    3.501   34.65      40.6   7.73     127.62    1,169.0   	1.594     32.10

Dec 5    4,012.0    3.750   34.90      41.4   7.74     130.16    1,228.0   	1.616     31.66

Dec 12   4,972.4    3.805   37.71      45.0   7.75     130.46    1,704.8   	1.654     32.25

Dec 19   4,987.5    3.819   39.00      44.7   7.75     129.00    1,576.5       1.670     32.20

Dec 24   5,611.6    3.820   39.70      45.2   7.75     129.88    1,822.7       1.666     32.45
Jan 2    5,985.0    3.954   40.80      48.0   7.75     132.44    1,695.S       1.694     32.60

Jan 9    8,643.9    4.596   43.90      53.2   7.75     131.59    1,811.5       1.772     33.89

Jan 16   8,502.9    4.180   41.21      51.7   7.74     129.16    1,608.7       1.732     33.51

Jan 23  14,555      4.550   43.61      53.7   7.75     126.00    1,764.6       1.766     33.85

Jan 30  10,398      4.159   42.49      52.7   7.74     126.97    1,514.6       1.711     33.74

Feb 5    9,599      3.934   40.34      48.5   7.74     123.63    1,597.4       1.658     32.61

Source: PACIFIC Exchange Rate Service. On Intemet at