Scribd Logo
Upload

Welcome to Scribd!

  • 34 views

    Asian Financial Crisis

    Uploaded by

    mridulkatiyar06_5470
    The document summarizes the 1997 Asian Financial Crisis. It began in Thailand due to the country's floating currency, real estate bubble, and high foreign debt. The crisis spread to other Southeast Asian countries and impacted their economies. Contributing factors included pegged currencies, high foreign exposure, and excessive speculation. The crisis underscored weaknesses in the Asian economic model and prompted IMF bailouts with restructuring conditions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Asian Financial Crisis

    Uploaded by

    mridulkatiyar06_5470
    34 views22 pages
    The document summarizes the 1997 Asian Financial Crisis. It began in Thailand due to the country's floating currency, real estate bubble, and high foreign debt. The crisis spread to other Southeast Asian countries and impacted their economies. Contributing factors included pegged currencies, high foreign exposure, and excessive speculation. The crisis underscored weaknesses in the Asian economic model and prompted IMF bailouts with restructuring conditions.

    Original Description:

    crisis

    Original Title

    Asianfinancialcrisis 1997 120302214630 Phpapp02

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document summarizes the 1997 Asian Financial Crisis. It began in Thailand due to the country's floating currency, real estate bubble, and high foreign debt. The crisis spread to other Southeast Asian countries and impacted their economies. Contributing factors included pegged currencies, high foreign exposure, and excessive speculation. The crisis underscored weaknesses in the Asian economic model and prompted IMF bailouts with restructuring conditions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    34 views22 pages

    Asian Financial Crisis

    Uploaded by

    mridulkatiyar06_5470
    The document summarizes the 1997 Asian Financial Crisis. It began in Thailand due to the country's floating currency, real estate bubble, and high foreign debt. The crisis spread to other Southeast Asian countries and impacted their economies. Contributing factors included pegged currencies, high foreign exposure, and excessive speculation. The crisis underscored weaknesses in the Asian economic model and prompted IMF bailouts with restructuring conditions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 22

    THE

    ASIAN FINANCIAL CRISIS


    1997
    Introduction
    A period of financial crisis Beginning July 1997
    Started in Thailand
    Floating the pegged currency
    Real estate driven financial over extension
    Excessive foreign exposure
    Resulting collapse of the Thai Baht

    Also affected Indonesia, South Korea, Hong Kong,


    Malaysia, Phillipines.

    IMF $40 billion to stabilize their currencies


    Overview
    The Asian Miracle (pre-crisis scenario)
    What happened in
    Thailand,Indonesia
    South Korea, Philippines, Malaysia

    Japan, US & China

    Consequences
    Role of IMF (International Monetary fund)
    The Asian Miracle
    1960s 1990s: Thailand, South Korea, Hong Kong,
    Singapore, Taiwan, Indonesia
    Maintained very high growth rates (8-12%)
    Primarily due to:
    Maintained High Interest rates to attract foreign
    investments
    Rapid industrialization

    Industrial Policies supporting exports


    Below market interest rates for exporting industries, etc
    Pre-crisis scenario
    Foreign Capital Inflows:
    US was in recession -> Low interest rates
    Asian Tigers - 50% of capital inflows in Asia
    Dramatic run-up in Asset prices

    Pegged Currencies
    Encouraged external borrowing

    High exports driving rapid economic growth


    Export to GDP ratio grew from 35% to 55%

    Excessive exposure to forex movements


    Paul Krugmans view

    He argued that East Asia's economic growth had


    historically been the result of increasing capital
    investment.
    However, total factor productivity had increased

    only marginally or not at all.


    Only growth in total factor productivity, and not
    capital investment, could lead to long-term
    prosperity
    The Bubble
    Thailands economy bubble fuelled by Hot money
    Debt-GDP Ratios went upto 180%
    More and more was required as the bubble grew
    Development money went in a largely uncontrolled
    manner to certain people only, not particularly the best
    suited or most efficient, but those closest to the centers of
    power.
    Real estate speculation
    Countries became excessively dependent upon exports
    for their economy
    Very high leverage & exposure to forex risk
    The Tipping point
    U.S. economy recovered from a recession in the early
    1990s,
    Began to raise U.S. interest rates to head off inflation.
    This made the U.S. a more attractive investment destination
    relative to Southeast Asia, which had been attracting hot
    money flows through high short-term interest rates,
    and raised the value of the U.S. dollar.
    For Asian currencies pegged to the U.S. dollar, the higher
    U.S. dollar caused their own exports to become more
    expensive and less competitive in the global markets.
    At the same time, Southeast Asia's export growth slowed
    dramatically in the spring of 1996, deteriorating their
    current account position.
    The down turn..
    Asset prices began to collapse
    Causing individuals & companies to default
    Panic among lenders led to withdrawal of funds
    Credit crunch & bankruptcies

    Depreciative pressures on exchange rates


    Government action:
    Raised interest rates tremendously to prevent capital flight
    Buying up excess domestic currency at fixed rate to
    maintain the peg
    Not sustainable in the long run (due to limited supply of
    forex reserves)
    Capital fleeing could not be stopped
    Central bany allowed currencies to float
    Drastic Depreciation
    Further increasing the debt obligations and worsening
    the crisis
    Thailand
    Prominent economy of South-east Asia.
    During 1985-96 was growing at highest rate of
    9%.
    Real Estate sector was booming.
    High interest rate attracted investments from US
    and west.
    Export growth was very high.
    Reason for failure
    Thailand Baht was pegged at 25 to US $.
    At the same time US had increased interest rate to
    curb inflation this made US investors to take their
    money from Thailand and invest in US.
    This trigger the outflow of $,resulted in devaluation
    of baht and it reached its lowest point of 56 units
    per $.
    This made foreign loan costlier by three times.
    It resulted in collapsed of various company and
    biggest financial corporation Finance One.
    There was fear among foreign investors about their
    money so they started pulling money from this
    markets.
    This deepens crisis, due to this many people lost
    their jobs.
    Political instability.
    Indonesia
    In June 1997 Indonesia seemed far from crisis
    because of
    Low inflation
    Trade surplus
    Huge foreign reserves $ 23bn
    Good banking system.
    Its currency Rupiah was appreciating due to this
    various company borrowed loans from foreign
    institutes.
    Thailand floated its currency due to this Indonesian
    authority also widened rupiah band from 8% to
    12%.
    In August rupiah comes under severe speculative
    attacks which devalued it to greater extent.
    Same condition occurred in Indonesia foreign
    corporate loans became costlier.
    Due to this Jakarta Stock Exchange touched historic
    low and Indonesia lost 13.5% of its GDP.
    Before crisis 1USD cost 2600 rupiah but during
    crisis it reached historic low of 11000 rupiah for
    1USD.
    This conditions improved when IMF provided bailout
    package.
    South Korea
    High NPAs ( Non Performing Assets)
    Great Conglomerates owned by government

    Debt to Equity : 30%

    No returns and Profit on these NPAs

    Excessive debt lead to takeovers

    Daewoo motors sold to General Motors


    South Korea
    High NPAs ( Non Performing Assets)
    Great Conglomerates owned by government

    Debt to Equity : 30%

    No returns and Profit on these NPAs

    Excessive debt lead to takeovers

    Daewoo motors sold to General Motors


    Philippines:
    Stock market fell to 1000 points from 3000
    Raised interest rates by 3.75%

    Overnight rates jumped from 15% to 32%

    Huge outflow of money


    Malaysia
    Attacked by Speculators
    Overnight rates jumped from 8% to 40%
    Stock markets fell by 50% from 1200 to 600
    All sectors were hurt, construction sector contracted
    23.5%, manufacturing shrunk 9% and the
    agriculture sector 5.9%
    3.80 peg against dollar
    First ever recession
    China
    US
    Japan
    Role Of IMF
    Bailouts
    Conditional Financing
    Structural Adjustment Package
    IMF and Interest Rates

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy