Three Essays on IMF Programs in Asia During the 1997--98 Financial Crisis

Date of Completion

January 2012


Economics, General




This dissertation addresses specific questions regarding IMF programs in Asia during the Asian financial crisis. Chapter I is an overview of the crisis and the role of the IMF. The next three research chapters look at the impact of IMF programs in Asia. ^ Chapter 2 looks at the immediate impact: Did the tight monetary policy mandated by the IMF work as intended by reversing the decline in the exchange rates? I evaluate the exchange rate and monetary policy in Asia using a VECM analysis for Indonesia, Korea, and Thailand, and extend this model to account for the role the state of the economy plays in monetary policy decision-making. I find that the IMF's tight monetary policy did contribute to an appreciation of the currency in these countries, and that economic activity played a key role in exchange rate determination. ^ Chapter 3 looks at the short-term impact: Did the IMF programs have a catalytic effect on capital flows? The catalytic effect is the belief that the IMF's granting of a loan acts as a catalyst for private capital flows, because the recipient country has agreed to terms requiring it to correct the imbalances that led to the crisis. I look at the effect the IMF's presence had on total capital flows, foreign direct investment flows, portfolio flows, and other investment flows into Korea using Ordinary Least Squares (OLS) and Generalized Least Squares (GLS), and do not find the existence of a catalytic effect. ^ Chapter 4 looks at the medium term impact: What was the effect on macroeconomic variables? I use the generalized evaluation estimator (GEE) method to examine the effects IMF programs had on the balance of payments, inflation, economic growth, and investment in two country panels: the first consisting of six Asian countries; and the second limited to the four that sought the IMF's help. I do not find that the presence of the IMF stimulated growth or other key macroeconomic variables. ^ My results therefore suggest that the IMF programs worked immediately to alleviate the effects of the crisis, but over time the impact was not significant. ^