Macroeconomic studies investigating the causes of the crisis in East Asia abound. However, until now, there have been little systematic or comparable data across the crisis-hit countries to provide a microeconomic explanation of the last two years’ events. Recognizing the importance of filling this information gap, the governments of Indonesia, the Republic of Korea, Malaysia, the Philippines, and Thailand, with the technical assistance of the World Bank, undertook an extensive survey of 4,000 firms between November 1998 and February 1999. The surveys have two areas of focus. The first is understanding the extent of the impact of the crisis on firms and identifying their constraints to recovery.
The second is looking at the determinants of productivity and longer-run issues of structural impediments to growth. This paper provides the overview to the first of these topics. It is based on the survey results and the conclusions of a regional dialogue attended by senior policymakers and private sector representatives from across Asia.
The paper explores the impact of the crisis by looking at changes in capacity utilization, export performance, and employment practices. The causes for the decline are then examined from the perspective of the surveyed firms. Given the attention paid to issues of credit availability, this issue is discussed at length. One of the contributions of the data set is that it provides information on the financial position of small and medium enterprises (SMEs) and unlisted large companies. It relates the extent of the firms’ leverage and their reliance on different sources of capital to their reported access to credit. One of the principal findings of the survey is that the nature of the firms’ cash flow position is the key to understanding their response to the crisis. These firms had been relying heavily on internal funds—and as sales fell with the slump in demand, the costs of imported inputs rose and nominal interest rates increased, severely hampering cash flow position. One of the policy messages is that the lack of demand was the main constraint reported by the firms. Stimulating demand is a priority, but the survey also demonstrates other structural problems, and that any stimulation must be complemented by simultaneous restructuring of the financial and corporate sectors.