Fiscal lessons from the East Asian financial crisis

Fiscal lessons from the East Asian financial crisis�

David Jay Green*, J. Edgardo Campos

Asian Development Bank, P.O. Box 789, 0980 Manila Philippines

Received January 2001; received in revised form April 2001; accepted April 2001

Abstract

This paper examines the financial crises experienced in East Asian countries beginning in 1997. Acommon thread of these occurrences is the failure to address the risks of positions and policies byeither the public or private sector, suggesting that there is a need to improve fiscal flexibility, to betterunderstand public sector assets and liabilities, and for a more flexible public cash management orcontrol system. The international community may need to establish fast-disbursing assistance systemsto support this increased flexibility. © 2001 Elsevier Science Inc. All rights reserved.

1. Introduction

The series of exchange rate shocks and subsequent recessionary experiences for the EastAsian countries starting in 1997 have been variously labeled as crises in finance, in banking,in the capital account, etc. However, they could equally be termed accounting crises, in thata common thread is the failure to adequately and explicitly address the risks of positions andpolicies either by the public or private sector. For the private sector, it was clearly a lack ofrisk monitoring by private enterprises or banks of the possible costs of large unhedgedshort-term dollar liabilities that resulted in massive insolvency with exchange rate depreci-ation and capital flight. By the same token, the failure of the government to assess the risks

� Prepared for presentation at “The Post-Financial Crisis Challenges for Asian Economies” a joint session ofthe American Economic Association and the American Committee on Asian Economic Studies, held at the AlliedSocial Sciences Associations, 5–7, January 2000, New Orleans. The opinions expressed are those of the authorsand not necessarily of the Asian Development Bank. An earlier version was presented at the “Sixth InternationalForum on Asian Perspectives: Development Resource Mobilization in the Post-Crisis Period,” OECD Develop-ment Centre, Paris, 3–4 July 2000.

* Corresponding author. Tel.: �62-21-251-2721; fax: �62-21-251-2749.E-mail address: [email protected] (D. Green)

Journal of Asian Economics 12 (2001) 309–329

1049-0078/01/$ – see front matter © 2001 Elsevier Science Inc. All rights reserved.PII: PI I S1049-0078(01)00090-2

and costs of minimal, inappropriate financial supervision and regulation has led to theassumption of private debt that will constrain public action for decades. From the perspectiveof the institutions of fiscal policy:

Y There is a need to improve fiscal flexibility—the capacity to alter the level and mix ofspending quickly and responsively to policy shifts. The public expenditure manage-ment system must be able to move smoothly to accommodate changes in spendingplans while still meeting national priorities.

Y The real nature of public sector assets and liabilities needs to be better understood andacknowledged. The crisis snowballed as private liabilities became public knowledgeand publicly assumed. The incorporation of a tracking system for public sector-contingent liabilities, e.g., debt of SOEs and foreign borrowing of private sector, wouldprovide a more accurate sense of public sector indebtedness and an early warningdevice for fiscal planning.

Y A more flexible cash management or control system is needed to ensure that the impactsof external or internal shocks are not aggravated by suboptimal cash release mechanisms.

To support this increased flexibility, it may be necessary for the international communityto establish emergency, fast-disbursing support systems that do not demand the extendedprocessing time for normal lending programs.

2. The crisis elements

The basic elements of the East Asian financial crisis are relatively well known. In late1997, the currencies of Thailand, Indonesia, the Republic of Korea (henceforth Korea),Malaysia, and Philippines experienced sudden, relatively unexpected depreciation. Theproblems spread first from Thailand and then throughout most of the region.1 Table 1provides summary data for the five crisis-affected countries. In all countries there was acommon set of circumstances and developments:

Y Earlier accumulation of foreign debt, especially by the private sector, became per-ceived as unsustainable.

Y A reinforcing cycle of currency depreciation and capital flight.Y A translation of the crisis to the real sector through a collapse in investment and

construction.Y A reduction in trade volumes with falling income but also attributable to financial

sector weaknesses restricting trade credits.Y Massive enterprise insolvency.

3. The initial shock and public expenditure2

3.1. Growing pressure on public resources

The initial impact of the crisis was a falloff in projected revenues with enterpriseinsolvency and declining trade and personal income. Public revenue collection was naturally

310 D.J. Green, J.E. Campos / Journal of Asian Economics 12 (2001) 309–329

responsive to aggregate income, as more than one-half of precrisis domestic revenues flowedfrom income and value-added taxes. However, in most countries, total revenue effort(tax-to-GDP) declined, especially because of the reliance on trade taxes.

In Indonesia, the Philippines, and Thailand, the shrinking revenue base was exacer-bated by the reduction in revenue collection efforts. The ratio of nonoil revenues-to-GDPin Indonesia and the tax-to-GDP ratio in the Philippines both fell by 1.5 percentagepoints compared to the immediate precrisis period. In Thailand, the tax-to-GDP ratiosimilarly fell by about 1.2 percentage points. In Korea and Malaysia, despite slightincreases in the revenue collection effort, revenues declined because of the significantfall in GDP.

The initial currency devaluation quickly increased the domestic cost of external debtservicing, placing an immediate strain on public budgetary resources. The impact of thisvaried across the region, being more important in those countries with the weakest overallpublic sector financial position, especially Indonesia and the Philippines. In Indonesia, on a

Table 1East Asian Crisis Indicators

1996 1997 1998 1999 2000

IndonesiaGDP Changes (percent) 7.8 4.7 �13.1 0.8 4.8Inflation 8.0 6.2 58.5 20.5 3.7Current Account Balance (percent of GDP) �3.4 �2.2 4.2 4.1 . . .Fiscal Balance (percent of GDP) 1.2 �0.7 �2.8 �1.1 . . .

KoreaGDP Changes (percent) 6.8 5.0 �6.7 10.7 . . .Inflation 4.9 4.4 7.5 0.8 2.3Current Account Balance (percent of GDP) �4.4 �1.7 12.6 6.0 . . .Fiscal Balance (percent of GDP) 0.1 �1.3 �3.8 �4.6 . . .

MalaysiaGDP Changes (percent) 10.0 7.3 �7.4 5.8 8.5Inflation 3.5 2.7 5.3 2.7 1.5Current Account Balance (percent of GDP) �4.6 4.7 13.0 15.5 . . .Fiscal Balance (percent of GDP) 0.7 2.4 �1.8 �3.2 . . .

PhilippinesGDP Changes (percent) 5.8 5.2 �0.6 3.3 3.9Inflation 9.0 5.9 9.8 6.6 4.3Current Account Balance (percent of GDP) �4.8 �5.3 2.4 10.3 . . .Fiscal Balance (percent of GDP) 0.3 0.1 �1.9 �3.7 �4.1

ThailandGDP Changes (percent) 5.9 �1.7 10.3 4.2 . . .Inflation 5.8 5.6 8.1 0.3 1.5Current Account Balance (percent of GDP) �8.1 �1.9 12.5 10.2 . . .Fiscal Balance (percent ofGDP) 0.9 �0.3 �2.8 �3.3 . . .

Source: Asian Development Bank, Asian Recovery Information Center web site http://aric.adb.org/indicators/all/fba_pgdp.asp 21 March, 2001. Except for fiscal balance, the individual country pages were used. Fiscalbalance is from the regional page.

. . . Not available.

311D.J. Green, J.E. Campos / Journal of Asian Economics 12 (2001) 309–329

current accounts basis, debt service as a proportion of GDP increased from approximately9% in FY1995-FY1996 to an estimated 13.5% in FY1998.3 The change resulted predomi-nantly from the increased domestic cost of foreign denominated loans because of theplummeting value of the rupiah, which went from Rp 2181 � $1 in FY1994 to Rp 7852.9 �$1 in 1999. Public sector interest payments on foreign exchange-denominated debt rose to9.7% of total expenditure against 8.1% in the previous fiscal year.4 In the Philippines, interestpayments as a fraction of national government expenditures rose from 16.6% in 1997 to19.5% in 1998.5

In Thailand, on a current accounts basis, debt-servicing requirements rose sharply. In1997, total debt service requirements as a proportion of exports of goods and servicesrose to 15.8% from 12.1% in the previous year and an average of 11.5% in the previous3 years.6

In the other two countries, the situation also worsened, although in a more manageablemanner, partly reflecting initially better conditions. In Korea, budgeted interest paymentsas a fraction of GDP increased from a relatively constant 0.5– 0.6% in the precrisisyears to 1.1% in 1998. Total external debt in Malaysia rose from 37.5% of GDP in 1996to 52.1% in 1998. However, the debt service burden remained quite small. In 1998,external debt service charges represented a spare 2.3% of total national governmentexpenditures.

3.2. An increase in public debt

In most countries, the weakness of the financial sector and the danger of bankingsector collapse led to massive infusions of public funds. This was accompanied by atransfer of private sector assets to the public sector. Debt management agencies werecreated, and public sector funds were drawn on to reduce the risk of insolvency anddepositor panics and to encourage a resumption of normal lending behavior.7 Theexception to the general trend was, interestingly enough, in the Philippines, longregarded as having the relatively weakest economy. In the other four countries a similarpattern of difficulties could be observed:

Y In Indonesia, where the problems were the most severe, the nonperforming loans of thepredominant state banks have been estimated at 60% of GDP in early 1999. The networth of the banking system as a whole was estimated to be negative and correspond-ing to approximately one-third of total GDP8 with restructuring costs estimated to be58% of GDP.

Y In Korea, reflecting a stronger economy, the nonperforming loans of the banking sectorwere a smaller 8% of GDP (end of September 1997). However, the system as a wholewas insolvent, and the fiscal costs of restructuring the banking system estimated at 16%of GDP.

Y In Malaysia, nonperforming loans had been increasing since 1996. In 1997, 5.9%of total banking sector loans were nonperforming, but this increased with theonset of the regional crisis to 14.3% in 1997 and 16.8% in 1998.9 This level is


lower than in most of the other countries, and the fiscal costs of bank restructuringare also lower, approximately 10% of GDP. Nevertheless, the ratio’s more thandoubled.

Y The nonperforming loans of the banking system in Thailand doubled with the crisis,rising from under 20% at the end of 1997 to approximately 45% in 1998 and 1999.10

The costs of restructuring are estimated at 31.9% of GDP.

As noted, the Philippines represents an exception, with the banking sector showing far lessstrain than in the other crisis-affected countries. There had been less exposure to foreignexchange risks, less direct dependency on the real estate sector, and less leveraged financing.Compared to other countries in East Asia, there also was more market-oriented behavior onthe part of the banking sector—a smaller presence of administrative guidance.

In part, the strengths of the Philippines represented the harsh lessons learned in previouscrises. As a result of crisis, particularly in the early and mid-1980s, the Philippines developedsupervisory and regulatory institutions and relied less on the banks for public investmentprograms. Reflecting this, the government is not expected to assume financial sector restruc-turing costs of any significance.

The increase in public sector debt in the other four countries has been offset partially bythe transfer of assets to the public sector. In most cases, these assets have been transferredto an agency tasked with managing them and responsible for their sale. In theory, these assetscorrespond to the debt incurred by the public sector and should offset the fiscal drainanticipated in debt management plans that project interest expenses for the central govern-ment. In practice, real assets often are not included in public sector accounting—onlyfinancial assets and debt are formally accounted for.11 Moreover, there is considerableuncertainty concerning the realizable value of the assets that have been turned over to thegovernment.12

The Indonesia Bank Restructuring Agency (IBRA) received nonperforming loans andcapital assets valued in mid-1999 at the Rp 645 trillion value of the bonds issued torecapitalize the banks. Approximately 39% were nonperforming loans, the rest capitalassets.13 IBRA asset sales are included in government revenue targets for budgetary pro-jection purposes. Divestment of assets was initially slow, with aggregate revenue throughSeptember 1999 just under Rp 11 trillion.14 Domestic political opposition and vestedinterests have often combined to frustrate quick and significant government assets sales.Domestic political opposition to asset recovery focuses on the “fire sale” aspect—the valuesreceived for the assets will be considerably under the precrisis book values.15 InternationalMonetary Fund (IMF) estimates suggest that asset recovery will only amount to roughly14–15% of the corresponding expenditures.16

In Korea, two government corporations, the Korea Asset Management Corporation(KAMCO) and the Korea Deposit Insurance Corporation (KDIC) issued bonds for Won64 trillion (about $53 billion in early 1999) to provide for financial and enterpriserestructuring. Although the bonds were issued by public corporations, the Ministry ofFinance and Economy explicitly states that “These funds will only be categorized asgovernment liabilities if and when KAMCO and KDIC are not able to redeem theprincipal on maturity bonds.”17 Thus, the gross value of the recapitalization bonds are


not regarded as public debt, only any net negative value. With similar intention, inThailand, the Central Bank explicitly notes that bonds issued for recapitalization (for theFinancial Institutions Development Fund) do not affect the net position of the govern-ment in that they exactly reflect capital.18 However, it is an open question as to whetherinternational capital markets value the Korean and Thailand public sector “balancesheet” in the same fashion.

3.3. Fiscal policy during the crisis

3.3.1. Initial procyclical policies emphasizing external stabilizationThe initial response to the crisis in every country was procyclical: lowered expenditures

and higher interest rates. The main concern was to rebuild international confidence thatforeign exchange-denominated loans would be repaid. The initial focus of policy actions onmaintaining external stability as opposed to maintaining aggregate income compoundedalready deteriorating macroeconomic and financial market conditions. Part of the policydilemma was a persistent underestimate of the extent of the crisis. Perhaps equally, there wasan overestimate of the ability to quickly stabilize the economies, of the impact of the initialpolicies.

The initial focus on stabilization also may have been encouraged by the assumption thatpolicy tools existed to allow the authorities to move in sequence from one set of problemsto another: from first stabilizing exchange rates and capital flows to addressing the emergingrecession. The contractionary impact of the initial policy was seen at first as lesser priority.Underlying this may have been an overestimate of the degree to which policy could shiftfrom one set of goals to another.19

Y The IMF program of Indonesia called for an initial restriction in public spending. Aninitial program targeted: (1) elimination of subsidies for fuel and electricity; (2)increases in sin taxes (on alcohol, for example); and (3) general increases in tax efforts,especially for VAT.20 The FY1998 budget called for a cut in total expenditures as aproportion of GDP to 14.0%, from 17.9% in FY1997 (and 18–19% in the previous 2years). The attack on subsidies was particularly important from the standpoint ofmounting effective countercyclical policy. In Indonesia, public expenditures have alarge subsidy element, and absent strong reforms to the contrary, inflation will increasepublic spending in these categories. Indeed, spending for petroleum subsidies rose over1000% in nominal terms in FY1997/98, increasing from little more than 2% of totalroutine budgetary spending in the previous fiscal year to nearly 19%.21

Y In Korea, after the initial evolution of a fiscal deficit in late 1997, in the first half of1998, the emphasis was clearly on restrictive fiscal and monetary policy, in line withIMF prescriptions to stabilize the won and the external sector in general. The initial1998 budget called for an overall deficit of 1.7% of GDP for the Central Government,the same as the 1997 level.22

Y Although Malaysia’s policies moved more quickly than other countries to a counter-cyclical stance, initially the focus was on fiscal conservatism. A press statement byMichel Camdessus, then Managing Director of the IMF, noted approvingly that


“Deputy Prime Minister Anwar has appropriately also proposed to rebalance macro-economic policies. Fiscal policy will maintain Malaysia’s strong record by targeting asurplus in 1998, despite the economic slowdown.”23

Y The Philippine IMF program of March 1998 called initially for a slight tightening offiscal policy, to reverse the recession-induced budget deficits expected in 1998 to asurplus: “from a deficit of 0.9 in 1998 to a surplus of 0.9 in 2003”.24 The difficultiesof tax revenue generation frustrated any restrictive fiscal policy in 1998. In response tothe weak tax collection, the government resorted to across-the-board budget cuts of asmuch as 15% and sequestering of appropriated expenditures through “cash rationing.”One analysis of the government’s response noted plans for a 25% cut in the 1998appropriations for nonpersonnel expenditures for the national government and a 10%cut in transfers to local governments.25 The process resulted in an accumulation of cashpayment arrears.26 Estimates of the payments arrears accumulated across sectorsthrough mid-1998 were on the order of P108.5 billion ($2.7 billion).27

Y Thailand also shows both the commitment to and the difficulties in attaining aprocyclical fiscal policy stance. In the letters of intent (LOI), for example, of August14, 1997 and November 25, 1997, the fiscal targets called for a small surplus inFY1998. In these first two LOIs after the onset of the crisis, the overall fiscal balancefor the Central Government and the consolidated public sector were both targeted at a1% surplus in FY1998, following the expected 1% deficit being experienced inFY1997. Increased taxes were called for, including raising the VAT rates from 7 to10%. As Asian Development Bank (ADB) staff have noted, the IMF programs inThailand recursively moved towards lower growth targets as incoming data disap-pointed earlier hopes. The IMF program of August 1997 projected real GDP growth for1998 at 3.5%, but 12 months later, the fifth revision in the program projected a sharpdecline of 7% for the year.28

3.3.2. Countercyclical policies were progressively adoptedIn spite of the failure of the initial programs to dramatically restore exchange rate stability,

the policy focus passed to confronting the downward spiral of aggregate demand andproduction. The initial policy goals were not met, but the costs of ignoring the realimpact of the crisis and the costs to the financial sector of high interest rates appearedto be mounting. Fiscal (and monetary policy) turned increasingly countercyclical. In this,the mounting evidence of the need to use public funds to support financial sectorrestructuring made plans that called for a quick return to public sector surplusesunfeasible.

Y Overall public spending in Indonesia, in FY1997, increased to 18.3% of GDP againstthe budgeted 14.0%. For FY1998, the spending program changed quite sharply. TheJanuary 15, 1998 LOI speaks of moving from a previous commitment of a target 1%budgetary surplus in FY1998 to a balanced budget. By April 1998, the change in policyhad been solidified and a target of a deficit of 3.0% was adopted.29,30 Senior DeputyGovernor of the Bank of Indonesia, Anwar Nasutian noted dissatisfaction with curbson public spending in the inner circles of the Soeharto regime surfacing in February


1998. (Bank of Indonesia, 2000, p. 156) Testifying to the policy-making difficulties, hespoke of a “wasted” half-year prior to the fall of the Soeharto regime in May 1998 inwhich the government vacillated between alternative strategies ranging from currencyboards to capital controls.31

Y Fiscal policy also loosened in Korea in the second half of 1998, although there wassome apparent stabilization of the won—the exchange rate had rebounded in early1998 and had stabilized by the second quarter. This eased the path for expansionaryfiscal policy, and the budget deficit for 1998 was raised from an initial target of1.7% of GDP to a deficit of 5.0%, which also was adopted for the 1999 budget.32

Y In Malaysia, the policy response has been the least conventional, with the governmentmoving sharply and quickly away from an initial policy of restrictive monetary andfiscal policy. Policy was changing by the month: in March 1998, fiscal policy hadbecome directed towards providing aggregate demand stimulus against an earlierconcern with reducing financing needs, although in April the IMF was still hopeful ofa public budgetary surplus.33 By May 1998, it was clear that the government hadshifted its focus towards fighting the emerging recession.34 Current expenditures werereduced and development expenditures were expanded with the annual budgetmoving into a modest deficit (after many years of being in surplus). The 1999budget announced in October 1998 was seen as a definite shift to countercyclicalpolicies. A deficit projection of 6% of GDP for the Federal Government wasdeemed acceptable.35

Y In the Philippines, the IMF-supported macroeconomic stabilization program shiftedemphasis in mid-1998 to deal more firmly with a weakening economy and less with“external vulnerability.” This was in spite of the perception that the external situationhad worsened in some important respects. A March 11, 1998 memorandum of thePhilippines government speaks of relaxing fiscal policy in the near-term; however, itcalled for a target of a consolidated public sector budget deficit of 0.9% of GNP for thefollowing year, for 1998—representing no change from the realized position for1997.36 The near-term deficit was expected to be transitory and the fiscal situation tomove to a balanced position in 1999. However, by early 1999, it was recognized that“a well-measured shift toward a more expansionary fiscal policy stance to stimulatedomestic demand” was necessary. The new target for the consolidated public deficitwas approximately 3.3% of GNP.37

Y In Thailand, expectations and concerns had shifted by early 1998, but the extent of thechange in stance was relatively small at first. The shift continued in a rolling fashion,with each new plan or program calling for increased public expenditures relative torevenues, that is, for increased deficits. The LOI of February 24, 1998 called for aFY1998 Central Government budget deficit of 1.6%, against a previous target of a1.0% surplus in the two previous LOIs, noted above.38 This was further changed to a2.5% deficit. These deficits were complemented by smaller, but significant planneddeficits for state-owned enterprises. Major changes also were made in the planneddeficits for FY1999, which was raised to a planned deficit of 3% for the nationalgovernment and an additional 3% considering SOEs and the expected costs of sup-porting financial sector restructuring.39


3.3.3. The deterioration in fiscal balanceIn most countries, the basic tool of expansionary fiscal policy was increased spending.

Reducing taxes was not seriously considered. Partly this is because tax collection was fallingin any event as the tax base diminished. Given the worsening outlook for businesses, onlypersonal tax cuts would have had any impact on aggregate demand—only a small part of thetax base was a viable target for tax cuts to stimulate the economy. Moreover, personal taxcuts would likely have had little impact on household spending given the uncertainty aboutemployment and income—tax cuts would not have been perceived as affecting long-termdisposable income. Finally, the inside lags are no shorter for lowering these tax rates than forspending increases. Thus, for a given change in the deficit, spending programs were seen asbeing the more useful tool.40

As a result of initial pressures and the movement towards countercyclical fiscal policies,the budget balance deteriorated quickly for all of the countries. Table 1 shows the overalldrift towards strong negative balances in a region hitherto characterized by fiscal surpluses.The largest impacts came when policies shifted to fighting the fast-emerging recessions andto assuming the costs of financial sector restructuring. Large initial impacts were seen,especially in Korea and Indonesia. Even here there is considerable indication that fiscaltargets were not met by actual spending, as a result of normal fiscal lags, the difficulties andchanging priorities of the crisis, and the problems of assembling external financing.

Y In Indonesia, the national government budget balances moved from small positivefigures before the onset of the crisis to a budget deficit of 2.8% of GDP in 1998.However, the deficits tended to run behind the changing targets—an increased urgencyto spend was continually frustrated by the difficulties of quickly spending funds. Inparticular, the economic crisis was reflected in political changes, not the least of whichwas a constant shuffling of key economic officials and of staff organization41 Inaddition, the World Bank identified problems related to the institutional structure forallocating and disbursing funds.42

Y In Korea, the budget balance tumbled into an average deficit of over 4% in 1998 and1999. Korea appears to have been the most consistent in targeting and maintaininglarge countercyclical deficits.

Y Alhough Malaysia was hit by the financial contagion, it has not had as serious aproblem with managing its budget. Throughout the 1990s, the country practicedprudent fiscal management, resulting in budget surpluses. This provided a cushionagainst a relatively less severe initial impact—in 1998, the budget fell into a small,controllable deficit of 1.8% of GNP, after a larger surplus in 1997. The greater fiscalfreedom for Malaysia also allowed it more flexibility in setting overall policy andprovided scope for an early swing to more expansionary fiscal policies.

3.4. Official development assistance (ODA) assistance tended to lag expectations

With the inevitable emergence of nonnormal budget deficits, the crisis countries had torequest and rely on extensive ODA. The loans were often policy-based, structural adjustmentpackages targeted at supporting reforms, including the improvement of regulatory and


corporate practices. These packages were not, in all cases, quickly or completely madeavailable. Loans tied to reform programs could only be disbursed with the processing of loandocuments and negotiations between government officials and staff from internationalorganizations over the nature, timing, and extent of the individual actions.

Tying assistance with an aim of funding expansionary fiscal crisis through reform orpolicy-based lending raises a number of issues. Clearly, some strong programs of reform andsome evidence of international acceptance of the reforms were important to attempt toreassure foreign exchange markets and investors, both domestic and foreign. This is con-sistent with the general approach of the IMF in its programs for macrostablization. However,it is clear that the crisis was used as an opportunity to address a large number of reforms, notall of them directly related to the immediate crisis. The ADB in Indonesia, for example,provided five loans with substantial policy-based components from mid-1998 to early 1999totaling $2.8 billion. These loans covered such topics as financial governance, socialprotection, power industry restructuring, and government decentralization. In each loan,typically two to three tranches were designed against a wide variety of reforms.43 Theprocess raises a number of issues, discussed below.

First, ODA was largely tied to specific policy actions (tranche conditions) thatencouraged internal efforts for change. However, many of these activities demandedlong-term institution building to be truly effective. Particularly in areas such as corporategovernance, regulatory and financial development, and civil service reform, successdemands years of change and experimentation. Specific loan conditions—written inaccordance with the needs to produce documents that meet legal and administrativerequirements—may prove to be unsynchronized with the political currents in a country.The actual experience has been that program loan releases were often delayed, suggest-ing a mismatch between the original timetables and current political will and reality. Ata minimum, it is hard to argue that a future crisis should not be met with one-trancheloans that support the most urgently needed and politically feasible reforms. Furtherreforms should be then undertaken as the crisis settles.

Second, should fiscal policy be underwritten by ODA? Long-term debts come with ODA.Should this be used to buy current public expenditure or reserved for public infrastructureassets to match the long-term liabilities? Given the perception at the time that decades ofdevelopment were at risk, ODA-financed expenditures to limit the downward spiral of thebanking and debt crises appears warranted.

Third, in many respects, however, the international agencies are not well positioned torespond to the need for emergency funding such as developed in East Asia as policy movedtowards countercyclical, expansionary fiscal spending. Increasingly, the internal proceduresof international organizations call for the conduct of background studies, for example, on theenvironmental or social impact of any activity, that cannot be done in a matter of weeks.International organizations also increasingly require widespread participatory involvement ofcivil society in project design that cannot be easily accomplished quickly. These proceduraldevelopments, moving in the direction of greater accountability, transparency, and partici-pation may increase the difficulties of providing support in emergency situations where timeis the more crucial consideration.44

In terms of actual transfers, except perhaps in the cases of Indonesia and Korea, it is


difficult to argue that official assistance was provided commensurate with the kind ofspending programs that eventually evolved. In this respect, the lack of quick financingreduced the ability to deal with the crisis from a countercyclical standpoint, limiting thescope for fiscal policy. The inability to immediately call on external resources to the degreenecessary aggravated the pro-cyclical response of the earlier policy stance.45

Y In Indonesia, commitments of ODA were quickly forthcoming and unprecedented. TheADB committed $3.5 billion, the IMF $10.1 billion, the World Bank $4.5 billion,Singapore $10 billion, and so forth, with a total of roughly $36.1 billion.46 However,actual disbursement tended to lag the developing needs for funds. Net official transfersmoved from a �$0.8 billion in FY1997 to a �$1.2 billion in FY1998, a swing on theorder of $2 billion (1% of GDP), or less than 5% of the level of public commitmentsbeing made.47

Y The extent of official commitments in Korea has been, similar to that of Indonesia,unprecedented for East Asia. The total IMF-structured multilateral assistance puttogether in late 1997 totaled $58.35 billion on a commitment basis.48 Unlike othercountries, funds actually seem to have been made rather quickly available. By the endof 1997, a financing package of callable capital was made available totaling $15.8billion, more than two-thirds from the IMF. External financing provided for approxi-mately 93% of the consolidated central government fiscal deficit.49 Similar althoughsomewhat smaller packages were available in 1998. Thus, in the case of Korea,financial resources were made relatively early.

Y In the Philippines, net external financing in 1998 provided P12.4 billion—a consider-able reversal from the net outflow of 6.4 billion in 1996–1997.50 Yet this onlyrepresented 24.8% of the total national government financing requirements. In dollarterms, the actual transfer was well under $0.5 billion (significantly below past flows).This was not consistent with the budget planning. Although some of the necessaryfunding for expanded public sector spending was to be raised in the internationalcapital markets, the bulk was expected to be extended by official assistance sources.Thus, the relatively small actual net transfers would clearly hinder fiscal policy fromquickly moving to counteract output declines.

Y Malaysia has for the most part shunned significant external financing, as it has beenable to raise the requisite funds domestically. In 1998, foreign borrowing was only16.2% of domestic borrowing used to finance the government’s fiscal deficit (as wellas an increase in reserves).51

Y Thailand also has received huge infusions of official assistance on a commitment basis.Comparable to the situation in Indonesia and the Philippines, in FY1997 about 25% ofthe central government’s budget deficit was actually financed by external sources.52

4. Expenditure allocations

In assessing the fiscal impact of the crisis, it is important to consider the changing mix ofexpenditures in addition to the change in overall spending and borrowing. As a result of the


fiscal pressures, some shifts in the mix of expenditures have occurred and the initial tightfiscal policy had an impact on government operations. In summary:

Y Efforts were made to protect social sector spending, although trend or aggregatespending was not generally maintained as the crisis unfolded.

Y Cutbacks were seen in administratively easy areas, including infrastructure projectspending and maintenance.

Y Capital spending, was first reduced and then used as a means of providing forexpansionary fiscal support for the economy.

Y In the extreme circumstances of constrained fiscal resources, nonoptimal budgetaryprocesses were resorted to.

4.1. The efforts to protect social sector spending

In general, real public spending in the social sector was preserved or strengthened earlyin the crisis. Fig. 1 shows nominal expenditures, generally the total for education, health,housing and social welfare, adjusted for price changes by using the GDP deflator.53 Exceptfor Malaysia, the countries show increases in spending from 1996 to 1997. The fact thatsocial sector spending was maintained testified to the high priorities accorded these sectors,but also to the difficulties in quickly adjusting these budgets—largely comprising personnelexpenditures. Subsequently, the picture is somewhat more mixed in 1998. Thailand andMalaysia show decreases in social sector expenditure. Moreover, even when there wasincreases in expenditures, except for Korea, the increase in 1998 was less then the trend foreach country might suggest. In summary, most countries have not maintained the pattern ofgeneral increases for social sector spending shown before the crisis.54

Finally, the pattern of expenditure must be viewed with the perspective of the crisis. Someaspects of the human impact of the crisis can only be addressed with higher social spending.The increase in poverty, although not as large as initially feared, calls for more public healthservices, financial support for children of poor families to maintain their access to education,and strengthened social safety nets. The expenditures necessary to address the increasedneeds related to the crisis have likely not been met.

A study of the Indonesia experience suggests a number of specific lessons:

Fig. 1. Real public social sector expenditures.


Y Effective social safety nets were generally lacking prior to the crisis. Indeed, inIndonesia, some programs—early warning systems for famines, labor-intensive works,and nutrition programs—previously had been experimented with but had been discon-tinued by the early 1990s.

Y The lack of effective social safety programs during a period in which millions offamilies were falling beneath the poverty line created a political imperative in favor ofretaining subsidies—even though the bulk of these do not go to the poor.55

Y Through program loans such as the ADB’s Scholarships and Grants Program, assis-tance was funneled directly to beneficiaries. For example, in education, each year about4,000,000 scholarships and 130,000 block grants were provided directly to studentsand schools, respectively.

In short, the existing public expenditure and management systems lacked the facility totrack the social impact of the crisis and to effectively intervene. However, crisis-directedprograms suggest potentially viable mechanisms for channeling assistance to the poor.

4.2. Capital expenditures

As shown in Fig. 2, for the poorer countries, capital expenditures fell off with the financialcrisis. In Thailand, the change is the most exceptional, coming against an earlier trend ofincreasing expenditures. There the difficulties of using fiscal policy to address decliningaggregate demand were quite apparent. ADB staff analysis concluded that the shift fromfiscally restrictive policy to one that effectively provided for stimulation occurred only in thelast quarter of 1998—more than 1 year after the recognition of the crisis. Problems includedthe time needed to restart projects after earlier cancellation.56

The Philippines showed a smaller fall in capital expenditures from 1997 to 1998. Meetingbudget priorities may have been complicated by the resort to “cash sequestering” during the

Fig. 2. Capital expenditures.


initial fall-off of public revenues (see remarks below). The reduced spending came on top ofa fairly strong and substantial precrisis downward trend in public infrastructure investment.Although some part of the decrease represents the ongoing decentralization and the shift offof the Central Government’s books and onto local governments, overall the crisis exacer-bated the existing problems of appropriating funds for capital spending.

In Malaysia and Korea there were clear signs of increased capital spending. Malaysia,showing the least fiscal strain and the quickest moves to countercyclical spending, managedto increase its spending on infrastructure by nearly 15%. In Korea, increases in capitalspending were used as an essential part of expansionary spending program. However, theincreased spending was much less than the precrisis trend would have suggested.

4.3. Crisis mechanisms

The financial crisis involved a series of false starts and reversals with respect to fiscalpolicy. Governments’ first constrained expenditures, then relaxed constraints, then moved tolarge-scale deficit spending, all in the space of less than 1 year—within the realm of onebudget. These shifts cannot be accommodated within the normal channels of decision-making for fiscal affairs that involve widespread discussions between the executive andlegislative branches. Moreover, mixing ODA support for counter-recession fiscal policy withambitious reform agendas may have been counterproductive with respect to both goals.

The crisis management exacerbates a problem commonly associated with poor, especially“soft” revenue forecasts. These are forecasts that project higher inflows than will be realized,resulting in fund shortfalls and a failure of the budget plan that has been approved. Dr.Rudolph Penner has noted that this allows the budget to be controlled in a nondemocraticfashion by the “bureaucrats”.57 In the crisis-affected countries, the budgetary coping mech-anisms contributed to a continuation of poor governance patterns in which public expendituredecisions are made in a nontransparent fashion.

In the Philippines, the fiscal constraints resulted in “cash rationing” in which paymentauthorizations were restricted. At first, this occurred in an across-the-board fashion—constraining different departments in an equal manner—and later in an uneven fashion withthe larger agencies receiving priority.58 This is effective in the immediate sense of meetinga budget, but often simply results in the accumulation of payment arrears and financialobligations that must be met in the near future. This coping mechanism also may result inincreased opportunities for corruption, as those owed money jockey for payment.59 The samefiscal control process has been used in the Philippines during similar periods of constrainedfiscal resources, such as in the early 1990s. During that period, the difficulties of using cashsequestering also were noted as inhibiting needed infrastructure investment and biasingspending away from such areas such as maintenance.

Events following the fall of Indonesia’s Soeharto regime illustrate the difficulties ofinstituting appropriate economic policy in turbulent times. In the best of circumstances, theshift from the authoritarian, highly centralized, and increasingly corrupt Soeharto regime toone that relied on decentralized, democratic institutions could not be done smoothly. Steps,for instance, that were taken to address the widespread perception of corruption wereespecially difficult to undertake alongside steps to sharply increase spending. Civil servants


became reluctant to continue business as usual lest they be accused later of corrupt practices.Spending involving foreign-funded projects have faced particularly slow implementationexperience as a result. Over the long term, institutional development will lead to a lessvulnerable economy; however, the short-run costs and the attempts at crisis mitigation wereoften highlighted during the crisis.

5. Fiscal burdens increase vulnerability to shocks

The postcrisis efforts at reform are hindered by institutional weaknesses that have becomemore acute as result of the crisis. The current weakness of the banks, for example, reduceslending and actively constrains enterprises. In other sectors, the presumption that growthwould continue and revenues always rise formed a background for a lack of reserveprovision. In dealing with these issues, one common theme for policy makers is a newappreciation of the importance of transparency, especially in public sector accounting andreporting.

5.1. Contingent liabilities: Indonesian nightmares

The massive increase in public sector indebtedness in the crisis-affected countries rein-forces the need for increased transparency in public sector accounting of contingent liabil-ities—future risks must be properly incorporated into today’s fiscal balances. The presentpublic focus has, rightfully so, been on the government’s assumption of the recapitalizationcosts of the banking industry. However, there are other potential problems that could resultin substantial public sector costs. It may not be that these sectors will merit the use of publicfunds if crisis threatens; however, there may be no politically acceptable alternatives. TheWorld Bank refers to this issue as one of implicit (contingent) liabilities, involving “publicexpectations and political pressures”.60

One potential problem stems from the weakness in the nonbank financial sector. The closerelationship between nonbanks and banks and the social implications of failures of insurancecompanies may well mean that the public sector cannot walk away from possible liabilitiesif risks turn into problems. In many cases, these institutions have been weakened over thepast several years as they experienced severe portfolio losses without any correspondingchange in their liabilities. The Bank of Indonesia’s sparse note in its 1999 annual report(Bank of Indonesia, 2000) simply states that the capital of financing companies had fallen toa “minus Rp531 billion.” (p. 73) Even before the economic crisis, Indonesia’s insuranceindustry faced difficulties. In particular, inappropriate and lax supervision had encouragedasset mismatching, which left the sector vulnerable to the exchange rate changes andbanking system failures when the crisis did hit.61 Pension systems similarly representareas of risk in economic difficulties. Some pension systems are clearly and directlypublic sector responsibilities; however, all have the capacity to cause public sector debtin the event of failure.

Other possible problems relate to the scope of expanded public obligations shouldeconomic difficulties detrimentally affect state-owned enterprises. For example, the Indone-


sian national power authority debt has dangerously expanded because of foreign exchange-linked contractual obligations (independent power producer purchases, dollar-denominateddebt) against rupiah-based revenues.

Finally, in common with other developing countries, the Indonesian government hassometimes extended guarantees to creditors for private sector borrowing of different types,that is, an explicit contingent liability. Credit programs, for instance, to small and mediumenterprises sometimes have guarantees, as have programs to ensure that export-credit hasbeen made available. What is certain is that the extent of the possible public sector exposureto problems resulting from these programs is not well known.

5.2. Off-budget expenditures need to be brought on-budget

The fiscal impact of the crisis may be much greater than suggested by changes inaggregate flows and expenditure allocations of the national governments. Off-budget itemsare common, and in most cases considerable, in the crisis-affected countries. Becauseoff-budget activities are not centrally reported or easily monitored, there are large uncer-tainties regarding both overall fiscal flows and expenditure allocations.

In Indonesia there are problems, for example, with respect to large-scale off-budgetsubsidies and with respect to the so-called “quasi-budget” activities. Off-budget subsidieshave long been present for food, petroleum, and fertilizer. The subsidies, generally in theform of payments to state-owned enterprises, have been estimated to amount to as much asRp 58 trillion in FY1998. This is equivalent to 5.8% of GDP or 21.5% of total budgetedexpenditures. These items are increasingly being put on the budget. In the FY1999 budget,subsidies, especially for submarket pricing for petroleum products, are equivalent to 19.1%of routine or current expenditures.62 Indeed, the fiscal crisis is forcing a reevaluation of theuse of subsidies—they are not a cost-effective manner of providing social safety nets andthey need to be replaced by institutional mechanisms that have a bigger impact on the poorwith corresponding less call on fiscal resources. In addition, many fees collected by agenciesare never fully recorded. These so-called “quasi-budget” revenues are used at the local levelfor education and reforestation efforts among other activities.

More serious problems relate to the existence of uncontrollable financing of governmentagencies. The World Bank has suggested that actual expenditure by the Indonesian militaryand police may combine to be as much as 3% of GDP—fully three times that recorded in thebudget.63 These extrabudgetary funds stem from associated businesses and do not representincome from corrupt activities; they flow in a systematic fashion to military and police units.

The lack of transparency reflects some of the basic weaknesses of the governance structureof the countries, and it is precisely doubts about this structure that have exacerbatedperceived fiscal and financial fragility. Current reform efforts, in Indonesia particularly,directly address improving transparency in the budget and the incorporation of off-budgetitems in the budget. This activity is consistent with the broader trend in the country of lessacceptance of corruption and poor governance. One positive aspect of the fiscal crisis that isresulting in more transparency has been that the FY2000 budget was publicly debated in thelegislature—the first time since the 1960s.64 Over time, this will provide for more transpar-


ency in the budget formulation and presentation and more accountability on the side of thegovernment officials responsible for budget preparation and implementation.

6. Conclusion: the crisis in public expenditure management

The impact of the region-wide crisis that began in 1997 in East Asia is still very much withus. Unprecedented increases in official assistance flows were provided to deal with the crisis.The huge debt assumed by most central governments for bank restructuring will continue toweigh on public decision-making, reducing resource availability. New fiscal arrangementswill have to be developed to cope with this new environment.

Considerable debate has occurred concerning whether the correct policy had been fol-lowed in this crisis. There has been all too little discussion concerning the need for newpolicy instruments to allow governments to quickly implement policy. There is particularlya need for new fiscal arrangements to lessen the impact and costs of future crises. Thesearrangements must support greater flexibility in fiscal policy, allowing the size and allocationof spending to change more rapidly in response to changing needs.

Notes

1. The regional contagion was testimony to the convergence of policy and performancein the region (see Green, 1994).

2. The comparison between countries is sometimes made difficult because of the dif-fering definitions for the fiscal year (FY). In Indonesia, until this year, the fiscal yearran from 1 April to 31 March; using the government’s terminology, FY1995 meansApril 1994 through March 1995. In the Philippines and Korea, the fiscal year is thecalendar year. In Thailand, the fiscal year ends on 30 September; thus FY1994designates October 1993-September 1994. In this paper, in some illustrations, anattempt was made to correct for these differences. In others, caution should beexercised in the cross-country comparisons.

3. ADB, Country Economic Review, Indonesia, March 1999, Appendix, Table 10 (AsianDevelopment Bank, 1999a).

4. IMF, Indonesia: Statistical Appendix, Staff Country Reports No. 99/39, May 1999, p.27, Table24 (International Monetary Fund, 1999a).

5. ADB, Country Economic Review: Philippines, January; 2000, p. 44, Table A.13(Asian Development Bank, 2000d).

6. ADB, Country Economic Review: Kingdom of Thailand, December 1998, p. 24, TableA.1 (Asian Development Bank, 1998).

7. Data on fiscal costs of bank restructuring are as of October 1999 see ADB, AsianDevelopment Outlook 2000, p. 31.

8. ADB, Country Economic Review: Indonesia, March 1999, p. 21–22.9. Bank Negara, Malaysia, Annual Report 1998, Table 4.8, p. 153 (Bank Negara, 1998).

10. ADB, Asian Development Outlook 2000, p. 25 (Asian Development Bank, 2000a).


11. In some cases, such as Indonesia, there is incorporation of expected asset sales innontax revenues in budget projections. However, this is generally over the near-term,the next 1 or 2 years, and does not correspond to the term structure of the debtincurred by the government.

12. Presumably, if the assets had clearly recognizable value, supported by sure revenuestreams, there would be little need to call for public assistance.

13. ADB, Country Economic Review: Indonesia, April 2000, p. 19 (Asian DevelopmentBank, 2000c).

14. IBRA, Activity Report, September 1999, p. 6 (Indonesian Bank Recover Agency,1999).

15. Sri Mulyani Indrawati and Thia Jasmina, “Indonesian Macroeconomic Constraints:Fiscal Challenges,” 2000, discuss the political context of IBRA, p. 6 (Indrawati andJasmina, 2000).

16. IMF, Indonesia: Selected Issues, Staff Country Report No. 00/132, October 2000, p.28 (International Monetary Fund, 2000a).

17. Ministry of Finance and Economy, Korea Economic Update, October 31, 2000. (fromwebsite; Ministry of Finance (Korea), 2000). In practice, bonds issued for recapital-ization appear to be included in international statistics on public debt. See forexample, IMF, Republic of Korea: Statistical Appendix, February 2000, Table 17, p.20 (International Monetary Fund, 2000b).

18. Bank of Thailand (BOT), Economic Data Release, Key Components of the Bank ofThailand’s Assets and Liabilities, from BOT website, November 29, 2000.

19. See, for instance, the 1998 conference discussion, which suggested that unpalatabletight monetary and fiscal policy might be necessary at first, but “should ease up .. onceconfidence was restored.” (Asian Development Bank Institute, 1998, p. 94).

20. Material in this section from Sinsiri,1998, p. 6.21. The Ministry of Finance, Indonesia web site http://www.depkeu.go.id. November 22,

2000.22. ADB, Country Economic Review, Republic of Korea, January 1999, p. 4 (Asian

Development Bank, 1999b).23. IMF, News Brief No. 98/9 March 25, 1998 (International Monetary Fund, 1998b).24. “Memorandum of Economic and Financial Policies of the Philippine Government,”

March 11, 1998 (International Monetary Fund, 1998a).25. World Bank, Philippines, The Challenge of Economic Recovery, p. 7 (World Bank,

1999).26. World Bank, Social Expenditure Priorities, 13 November 1998, p. I (World Bank,

1998).27. World Bank, Social Expenditure Priorities, 13 November 1998, p. 2, Table 1.1.28. ADB, Country Economic Review, Kingdom of Thailand, December 1998, p. 3 (Asian

Development Bank, 1998).29. “Supplementary Memorandum of Economic and Financial Policies,” Indonesian

Government, April 10, 1998 (International Monetary Fund, 1998d).30. Nasutian (2000) emphasizes that the shift in policy was to accommodate social safety

net spending (p. 155).


31. Nasutian (2000, p. 156) argues that there was little scope for Indonesia to adopt eitherof these policies.

32. ADB, Country Economic Review, Republic of Korea, January 1999, p. 4, Table 2(Asian Development Bank, 1999b).

33. For the suggestions of expansionary policies, see Bank Negara Malaysia AnnualReport 1998, p. 4 (Bank Negara, 1998). The IMF press information notice “IMFConcludes Article IV Consultation with Malaysia,” 27 April 1998, provides a moreconservative characterization (International Monetary Fund, 1998c).

34. Bank Negara Malaysia Annual Report 1998, p. 4 (Bank Negara, 1998).35. Ministry of Finance, Malaysia, Economic Report 1999/2000, p. 79 (Ministry of

Finance (Malaysia), 1999).36. Memorandum of Economic and Financial Policies, Philippines Government, March

11, 1998 (International Monetary Fund, 1998a).37. Supplementary—Memorandum of Economic and Financial Policies, Philippines

Government, January 20, 1999(International Monetary Fund, 1999c).38. ADB, Country Economic Review, Kingdom of Thailand, December 1998, p. 18.39. ADB, Country Economic Review, Kingdom of Thailand, December 1998, p. 18.40. The authors are grateful to Mr. Hafiz Ahmed Pasha for calling attention to the

asymmetry between the use of tax and spending.41. Sri Mulyani Indrawati and Thia Jasmina, “Indonesian Macroeconomic Constraints:

Fiscal Challenges,” p. 3 (Indrawati and Jasmina, 2000).42. World Bank, Indonesia: Public Spending in a Time of Change, March 30, 2000, p.

5–6 (World Bank, 2000b).43. One internal count suggests that as many as 70 reforms would be required for the

package, including, in some cases, legislative approval.44. Looking forward, the ongoing process of decentralization in Indonesia, which trans-

fers spending decisions to local governments, could well compound any futurecrisis-decision to rapidly change public expenditures.

45. See Corsetti, 1998, p. 52.46. ADB, Country Assistance Plan: Indonesia (2000–2002), p. 17 (Asian Development

Bank, 2000b).47. IMF, Indonesia: Statistical Appendix, IMF Staff Country Report No. 99/39, May

1999, p. 44, International Monetary Fund, 1999a. With respect to fiscal expenditures,external financing was estimated to have accounted for 27.4% of the central govern-ment deficit in FY1997. See also the World Bank, Indonesia: Accelerating Recoveryin Uncertain Times, p. 28, which charts the differences between pledges and actualdisbursements in ODA (World Bank 2000a).

48. ADB, Country Economic Review: Republic of Korea, p. 15, January 1999 (AsianDevelopment Bank, 1999b).

49. IMF, Republic of Korea: Statistical Appendix, IMF Staff Country Report No. 00/10,February 2000, p. 15 (International Monetary Fund, 2000b).

50. IMF, Philippines: Statistical Appendix, IMF Staff Country Report, No. 99/93, August1999, Table 11, p. 15 (International Monetary Fund, 1999b).


51. Minister of Finance (Malaysia), Economic Report 1999/2000, Table 4.2. (Ministry ofFinance (Malaysia), 1999).

52. ADB, Country Economic Review: Kingdom of Thailand, December 1998, Table 5, p.7 (Asian Development Bank, 1998).

53. See ADB’s Asia Recovery Information Center web site: http://www.aric.adb.org,June 2000.

54. The impact of the fiscal crisis on social sector spending may be more serious thansuggested in the paper. In some countries, especially the Philippines much responsi-bility for this has been devolved to local governments that also suffered fiscalconstraints.

55. See the ADB’s Poverty Assessment in Indonesia, Asian Development Bank, 2000(especially p. 18) (Asian Development Bank, 2000e).

56. ADB, Country Economic Review, Thailand, December 1998, p. 18 (Asian Develop-ment Bank, 1998).

57. Dr. Penner noted this in a keynote presentation at the 12th Annual IndonesianEconomists Association Jakarta Chapter–Embassy of the United States of AmericaEconomic Seminar, Jakarta, 25 September 2000.

58. See Reyes et al., 1999, p. 20–21. There were also cutbacks in transfers to localgovernments.

59. World Bank, Social Expenditure Priorities, November 13, 1998, p. 5–6 (World Bank,1998).

60. World Bank Indonesia: Public Spending in a Time of Change, Box 1.1, p. 9 (WorldBank, 2000b).

61. See Chou, 1999.62. ADB, Country Economic Review, Indonesia, March 1999, p. 5 (Asian Development

Bank, 1999a).63. World Bank, Indonesia: Accelerating Recovery in Uncertain Times; Brief of the

Consultative Group on Indonesia, p. 23 (World Bank, 2000a).64. ADB, Country Economic Review, Indonesia, March 1999, p. 6 (Asian Development

Bank, 1999a).

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Fiscal lessons from the East Asian financial crisis