Part 3-IV Section Outline

The Promises & Perils of Globalization

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1. The Promises of Financial Globalization
   1. The Borrower's Perspective
   1. Access to a global supply of savings reduces the cost of borrowing.
   2. Financial globalization gives the borrower access to sophisticated products and services.
   3. Indirectly, globalization will increase the sophistication and efficiency of domestic financial markets.
   2. The Investor's Perspective
   1. Financial globalization gives investors access to investments with higher returns and thus greater profits.
   2. Financial globalization helps reduce the risks of investment, such as "country risk" and "currency risk."
   3. Financial globalization gives financial institutions access to new markets.
2. The Perils of Globalization
   1. Global Competition for Investment Capital Requires Companies to be "World Class."
   2. Borrowers' Ability to Compete Depends on Massive Regulatory Reform and Global Economic Coordination.
3. The Asian Financial Crisis: Background
   1. Asia's Economic Success in the 1980s Illustrates the Promise of Financial Globalization: Asia's Market-Oriented Economies Attracted Foreign Investors Whose Capital Fueled Economic Expansion.
   2. Asian Governments Pegged their Exchange Rates to Promote Confidence.
   3. By Adopting Pegged Exchange Rates, Host Countries Promised Everyone They Would Defend the Declared Value of the Currency, a Promise They Eventually Had to Break.
   4. The Steep Devaluations of the Regional Currencies Caused Great Economic and Social Pain.
   5. Many Factors Contributed to the Crisis; Experts Disputed Over the Main Sources.
4. The Asian Financial Crisis: A Country-by-Country Analysis
   1. The Crisis First Emerged in Thailand.
   1. Financial globalization enabled increased foreign investment in Thailand, which led to overvaluation of the baht.
   2. The overvalued baht led to a worsening of the current account balance, a speculative assault on the currency, and a devastating devaluation.
   3. Thailand's financial crisis could not easily be contained in a globalized economy.
   2. The Crisis Spread to the Philippines but had a Limited Impact on the Country’s Economy.
   3. The Crisis Spread to Malaysia, which Implemented Structural Reforms without an IMF Program.
   4. The Crisis has Hit Indonesia Severely, Causing Food Riots and Ethnic Tensions.
   5. Korea Became the Contagion’s Next Victim.
5. The IMF's Response to the Crisis: The Example of Korea
   1. The Korean Government Initially Attempted to Solve the Crisis on its Own.
   2. Korea Eventually Agreed to an IMF-Led Rescue Package Intended to Restore Investor Confidence.
   3. Korea Agreed to Make Profound Structural Changes in Return for Financial Assistance.
   1. The government agreed to allow Korean banks to fail.
   2. Korea agreed to reduce or eliminate extensive labor protections.
   3. Korea agreed to greater economic transparency.
   4. In the Meantime, Korea Restructured Short-term Foreign Debt Owed to Major International Commercial Banks.
6. Development, Globalization, and the Asian Financial Crisis

[Part Three Bibliography]

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