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    Group 7F - FIS-Asian Crisis

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    The document summarizes the 1997 Asian Financial Crisis. It outlines that Southeast Asian economies maintained high interest rates which attracted foreign investment and led to large current account deficits. When US interest rates rose in the late 1990s, these economies faced slowing exports and deteriorating current account balances. This caused a loss of confidence in the Thai baht in 1997, prompting speculative attacks on currencies across the region. Countries like Thailand, Indonesia, and South Korea abandoned their pegged exchange rates as their currencies collapsed and economies contracted sharply. The IMF intervened with large rescue packages that imposed austerity measures, though the crisis exposed weaknesses like unstable foreign capital flows and weak banking systems.

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    Group 7F - FIS-Asian Crisis

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    shroffanant
    34 views13 pages
    The document summarizes the 1997 Asian Financial Crisis. It outlines that Southeast Asian economies maintained high interest rates which attracted foreign investment and led to large current account deficits. When US interest rates rose in the late 1990s, these economies faced slowing exports and deteriorating current account balances. This caused a loss of confidence in the Thai baht in 1997, prompting speculative attacks on currencies across the region. Countries like Thailand, Indonesia, and South Korea abandoned their pegged exchange rates as their currencies collapsed and economies contracted sharply. The IMF intervened with large rescue packages that imposed austerity measures, though the crisis exposed weaknesses like unstable foreign capital flows and weak banking systems.

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    The document summarizes the 1997 Asian Financial Crisis. It outlines that Southeast Asian economies maintained high interest rates which attracted foreign investment and led to large current account deficits. When US interest rates rose in the late 1990s, these economies faced slowing exports and deteriorating current account balances. This caused a loss of confidence in the Thai baht in 1997, prompting speculative attacks on currencies across the region. Countries like Thailand, Indonesia, and South Korea abandoned their pegged exchange rates as their currencies collapsed and economies contracted sharply. The IMF intervened with large rescue packages that imposed austerity measures, though the crisis exposed weaknesses like unstable foreign capital flows and weak banking systems.

    Copyright:

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    Download as pptx, pdf, or txt
    34 views13 pages

    Group 7F - FIS-Asian Crisis

    Uploaded by

    shroffanant
    The document summarizes the 1997 Asian Financial Crisis. It outlines that Southeast Asian economies maintained high interest rates which attracted foreign investment and led to large current account deficits. When US interest rates rose in the late 1990s, these economies faced slowing exports and deteriorating current account balances. This caused a loss of confidence in the Thai baht in 1997, prompting speculative attacks on currencies across the region. Countries like Thailand, Indonesia, and South Korea abandoned their pegged exchange rates as their currencies collapsed and economies contracted sharply. The IMF intervened with large rescue packages that imposed austerity measures, though the crisis exposed weaknesses like unstable foreign capital flows and weak banking systems.

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    of 13

    SOUTH EAST ASIAN CURRENCY

    CRISIS
    Before Crisis
    Economies of South East Asia

    • Maintained high interest rates attractive to foreign investors looking


    for a higher rate of return

    • Economies of South East Asia experienced high growth rates, 8-12%


    GDP, in the late 1980’s and early 1990’s

    • Thailand, Indonesia and South Korea had large current account deficit

    • Excessive exposure to foreign currency risk in both the financial and


    corporate sector

    • In 1990’s the U.S Economy recovered from recession


    Before Crisis - Impact
    • U.S interest rates started increasing to head off inflation

    • Southeast Asian countries export growth slowed down in


    1996, deteriorating their current account position

    • At the end of 1996, the proportion of loans with maturity of


    one year or less was 62% for Indonesia, 68% for South Korea,
    50% for the Philippines, 65% for Thailand, 50% for
    Philippines, 65% for Thailand and 84% for Taiwan
    South East Asian Currency Crisis
    Causes of the financial crisis

    • Unsustainable Current Account Deficits


    • Over dependence on Short-Term Foreign Funds
    • Over inflated Asset Prices
    • Macroeconomic Policy-Fixed Exchange Rates
    CHAIN OF EVENT
    • The largest non-bank financial institution in Thailand becomes
    bankrupt. By the end of the year, fifty-six such finance houses were
    closed down.

    • Thailand, Philippines, Indonesia and Malaysia abandon their pegged


    exchange rate

    • Corporate failure at South East Asian Countries

    • Speculative attack at Thai Baht during 1996 and early 1997

    • Political uncertainty at Korea, Thailand and Philippines


    Events from Macroeconomic point of view

    • Exchange rates depreciates

    • Foreign lenders concerned with the repayment of loans,


    withdrawal funds

    • Domestic interest rates soar up

    • Lack of bankruptcy laws and rising Non Performing Loans


    added to the stress of the banks

    • Banks became illiquid


    WHICH COUNTRIES WERE HIT

    Hong Kong
    THAILAND INDONESIA
    • Booming Thailand economy • Drastic devaluation Rupiah-from 2000 to
    ground to a halt, contracted by 1.9%. 18000 for 1 US$
    • Unemployment rate all-time high • Sharp price increases, Excessive Inflation
    • Stock market dropped 75% • Governor, Bank of Indonesia
    x was sacked
    • Baht reached 56$ in Jan 98 • President Suharto forced to step down in
    May 1998 after 30 years in power

    Impact
    SOUTH KOREA JAPAN
    • Drastic devaluation of won-from • 40% of Japan’s exports go to Asia,
    1000 to 1700 for 1 US$ so it was effected even if the
    • Credit rating of the country economy of Japan was strong
    (Moody’s)-A1 to B2 • Japanese Yen fell to 147
    • National Debt-to-GDP more than • GDP real growth slowed down from
    doubled 5% to 1.6%
    • Major setback in Automobile • Some companies went bankrupt
    industry
    Impact on US

    Stock Exchange got severely hit

    NYSE suspended trading for the first time


    ever

    Dow Jones suffered its 3rd Biggest point losses


    ever
    Role of IMF
    • Financial Assistance – IMF unveiled $112 billion
    rescue packages for Indonesia, Malaysia and Thailand
    • IMF introduced structural adjustment packages
    – Increase interest rates
    – Penalize insolvent companies
    – Reduce government spending to reduce deficits
    • Fiscal Policy was tightened
    • Restructuring of the economy
    Learning from the Fiasco

    • Choosing the right exchange rate regime


    • Central Importance of Banking
    • Stricter Regulations
    • Balanced Current Account
    • Timely action with respect to monetary and fiscal
    policy
    Group 7F
    Anant Shroff, Arjit Pandey, Jaydeep Kavadi, Rakshit Goyal

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