Debt and Indicators
Aggregate resource flows
Key Indicators

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In 1997, East Asia and the Pacific experienced severe turmoil in external resource flows and equity and foreign exchange markets (see chapter 2). Except for Thailand, external debt flows increased strongly during the first part of the year. But the 20 percent devaluation of the Thai baht on July 2, which was quickly followed by sharp declines in the Philippine, Indonesian, and Malaysian currencies, sharply impaired these countries’ access to international markets. Few borrowers tapped bond markets, syndicated loan commitments fell and maturities shortened, and international equity issues were postponed. Stock markets in Southeast Asia suffered declines of 30–45 percent, and several markets experienced negative portfolio equity flows during the second half of the year. Capital outflows (which are not reflected in Global Development Finance data on long-term flows) increased as residents transferred funds abroad and creditors refused to roll over short-term debt. China was not affected by the crisis to the same degree as the other major borrowers in the region; its total capital market transactions (including bond issues, loan syndications, and international equity issues) fell to $12 billion during the second half of the year compared with $15 billion during the first half.

Debt and Indicators

MODEST RISE IN LONG-TERM DEBT. Despite the appreciation of the dollar against major currencies, the region’s long-term external debt rose 10 percent in dollar terms in 1997. The bulk of the increase was due to the 20 percent rise in private nonguaranteed debt, which went from $93 billion in 1996 to an estimated $111 billion in 1997. In several countries the private sector took on a significant increase in external liabilities during the first half of the year, as exchange rates pegged to the dollar and low foreign interest rates encouraged external borrowing. The stock of bonds not guaranteed by the public sector increased to $34 billion in 1997, or 30 percent of total nonguaranteed debt, from just $1.3 billion in 1992.

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DEBT INDICATORS REMAIN LOW ON AVERAGE BUT VARY WIDELY WITHIN THE REGION. The region’s average debt indicators continue to be lower than in most other developing regions. The ratio of debt to exports was 103 percent in 1997, compared with 134 percent for all developing countries. The low debt ratio reflects the modest levels of debt held by most of the region’s middle-income countries (excluding Indonesia). By contrast, some of the region’s poorer countries—such as the Lao People’s Democratic Republic, Myanmar, and Vietnam—have very high levels of debt and will be considered for eligibility for the HIPC Initiative.

Aggregate resource flows

Net long-term resource flows into East Asia and the Pacific fell from $107 billion in 1996 to $103 billion in 1997. Foreign direct investment fell from the high levels of 1996, and portfolio equity flows dropped sharply with the onset of the financial crisis. Net long-term private debt flows increased from $28 billion in 1996 to $34 billion in 1997 because of heavy borrowing in the first half of the year, when bond issues and syndicated loan commitments equaled 60 percent of the total amount borrowed in 1996. But bond issues and loan commitments dropped sharply in the second half of the year, to just 60 percent of the first half’s pace.

FOREIGN DIRECT INVESTMENT DECLINES. Net foreign direct investment (FDI) flows fell 9 percent from the 1996 level, to $53 billion. However, the region still receives more than 40 percent of FDI flows to developing countries. The decline in FDI in 1997 was largely due to a $4 billion fall in inflows to China (where flows increased in 1996 as investors sought to take advantage of tax preferences that expired that year) and Indonesia (where flows were unusually high in 1996). China remained the largest source of net outflows of FDI among developing countries.

PRIVATE DEBT AND PORTFOLIO EQUITY FLOWS ARE STRONG UNTIL JULY, THEN FELL SHARPLY. For the first half of the year, syndicated loan commitments, bond issues, and international equity issues to East Asia were about 30 percent higher than for the same period in 1996. While flows to Thailand declined, international equity issues to China were up strongly, and most of the region’s middle-income borrowers continued to enjoy broad access to international capital markets. But this trend changed dramatically with the steep currency devaluations in Southeast Asia beginning in July 1997. After the devaluations few borrowers accessed bond markets, spreads on the few bond issues from affected countries were as high as 900 basis points in the second half of the year, and spreads on Indonesian, Thai and Philippine eurobonds in the secondary market rose 250–350 basis points between July and October. The flight of capital from these economies was evidenced by stock market and currency declines, which drove the dollar value of stock markets down to 50–75 percent of the level at the beginning of the year. Some countries were able to borrow from commercial banks during the fourth quarter through the increased use of collateral (such as liens on receivables and other assets) and the provision of put options that reduced investors’ risk.

Key indicators
Billions of U.S. dollars

a. Preliminary.

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GNP per capita, 1996: $890

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