East Asia Crisis

SECTION C-GROUP 9
Presenters & their contribution

NAME ROLL NO. CONTRIBUTION
NAVYA MUKHI 2013162 Description of Four Asian Tigers,
East Asia Miracle , Before Crises
situation
MANDEEP MOHANDAS

2013145 Description of beginning of
crises,triggering events,other
events.
JASLEEN KAUR 2013122

Effects of crises on countries like
Indonesia ,S.Korea,
Phillipines,Japan, Taiwan,etc.
HITESH DEVA

2013118

Effect on U.S & India, why India
was not affected much by this
crises.
JAI PAREKH

2013121

IMF Role,why Asian Crises was
not predictable & conclusions
South Korea
Indonesia
Philippines
Thailand
Hong Kong
Singapore
Malaysia
Taiwan

East Asian Countries
Source : Google Images
The Four Asian Tigers or Asian Dragons are the
highly developed economies of Hong Kong,
Singapore, South Korea and Taiwan (Republic of
China).

These regions were the first newly
industrialized countries, noted for maintaining
exceptionally high growth rates and rapid
industrialization between the early 1960s and
1990s.

All four Asian Tigers have a highly educated and
skilled workforce and have specialized in areas
where they had a competitive advantage.

They sustained rate of double-digit growth for
decades.

Four Asian Tigers
Many factors have been identified as the cause of
East Asia's relative success - outward orientation,
high saving and investment rates,
macroeconomic discipline, and other good public
policies

Each focused on exports to rich industrialized
nations.

Each of the Asian Tigers had high tariffs on
imports and undervalued currencies.

They had high interest rates attractive to foreign
investors looking for high rate of return.

East Asia Miracle
Received large inflow of money.
High growth rate (8-12%GDP).
Dramatic run up in asset prices.
Increase capital investment.
High per Capita Income.
Thailand, Indonesia and South Korea had
large private current account deficit.
It led to excessive exposure to foreign
exchange risk in both the financial and
corporate sectors.

Before Crisis
The rapid reversal of private capital inflows
into Asia.
Net private inflows dropped from $93 billion
to -$12.1 billion.
The sudden drop in bank lending followed a
sustained period of large increases in cross
border bank loans.
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, and 84% for
Taiwan.
Beginning of Crisis
In early 1997 in Thailand Hanbo Steel, Sammi
Steel and Kia Motors collapsed.
These bankruptcies, in turn, put several
merchant banks under significant pressure.
The Bank of Thailand lent over 200 billion ($8
billion) to distressed financial institutions
through Financial Institutions Development
Fund (FIDF).
The BOT committed almost all of its liquid
foreign exchange reserves in forward
contracts.
Usable reserve levels of Central Bank fell
sharply.
Triggering Events
In late June 1997, the Thai Government
removed support from a major finance
company, Finance One.

This shock accelerated the withdrawal of
foreign funds, and prompted the currency
depreciation on July 2, 1997.

The Thai baht devaluation triggered the
capital outflows from the rest of East Asia.
Other Events
oWhat happened in Indonesia :
Drastic devaluation of the rupiah: from 2,000
to 18000 for 1 US $.
Sharp price increase.
Widespread rioting.
oWhat happened in S. Korea :
Drastic devaluation of the won from 1,000 to
1,700 per US $.
National debt to GDP ratio more than
doubled.
Major setback in automobile industry.

Effects on Countries
oWhat happened in Philippines :
Growth dropped to virtually zero in 1998.
Peso fell significantly, from 26/US$ to 55/US$ .

oWhat happened in Japan :
40% of Japans export go to Asia, so it was
affected even if the economy was strong.
GDP real growth rate slowed from 5% to 1.6% .
Some companies went bankrupt.
The Japanese yen fell to 147.
Japan was the world's largest holder of currency
reserves at the time, so it was easily defended,
and quickly bounced back.

Effects On Countries
What happened in Hong Kong :
Hong Kong dollar came under attack in
November as a result of currency
depreciations.
Hong Kong banks faced steeply rising
interest rates on liabilities

What happened in Taiwan:
New Taiwan dollar also came under
pressure and fell sharply, despite Taiwan's
huge stock of reserves.

Effects On Countries
Markets did not collapse, NYSE severely hit.

Dow Jones industrial average suffered as 3rd
biggest point losses.

Raised the value of US Dollar.

The higher US Dollar caused their own
exports to become more expensive & less
comparative in global markets.

Effects On U.S
India was relatively unaffected by the East
Asian crisis.

Indias balance of payments was also spared
the effects of the East Asian turmoil.

Indian rupee depreciated by 15% against the
US dollar, compared to declines of between
25 and 35% in the Thai, Malaysian, and South
Korean currencies and a 70% fall in the
Indonesian rupiah

Effect On India
Floating exchange rate with some influence by
the RBI during periods of crisis.
Strong fundamental growth with services sector
being the prime reason.
External debt to GDP had been declining for the
past few years.
India does not have capital account convertibility
so capital outflows through a contagion effect
could not destabilize the economy.
Banks in India are discouraged from making
investments in real estate and the stock markets,
while corporate exposure to external debt has
been controlled.

Why was India not affected much?
Provided $120 billion as bailout package. Imposed
restrictive condition
IMF programs up till the end of 1997 apparently
added to the panic.
The IMF programs generally called for key actions
like immediate bank closures, tight domestic credit,
high interest rates on central bank discount
facilities, fiscal contraction.
Non-financial sector structural changes. The de-
capitalized banks restricted their lending in order
to move towards capital-adequacy ratios required
by bank supervisors and by the IMF.
Currency depreciation and stock market collapse
continued long after the programs were signed.
Local called the financial crisis the IMF crisis due
to its controversial role.

IMF Role
The Countries maintained good budgetary
positions.

Domestic savings and investment rates were
very high throughout the region.

Interest rates were usually less in rest of the
world (US and Japan).

Massive capital inflows were attracted into
the region during the 1990s.

Healthy Forex reserves Thailand reached
$38.6 billion in 1996 equivalent to over 7
months of imports.

Why The Asian Crisis Was Not Predicted
East Asian crisis resulted from financial panic
that arose from certain emerging
weaknesses in these economies.
It could have been largely avoided with
relatively moderate adjustments and
appropriate policy changes.
There were macroeconomic imbalances,
weak financial institutions, widespread
corruption, and inadequate legal
foundations.
Abrupt actions by domestic and
international policy makers can worsen an
incipient crisis, by helping to trigger the
capital outflow.
Conclusion
References
http://discover-it.blogspot.in/2007/06/east-asian-currency-crisis-of-
1997-98.html

http://en.wikipedia.org/wiki/1997_Asian_financial_crisis

http://internationaldebtcrisis.wikispaces.com/Asian+Financial+Crisis

http://www.newyorkfed.org/research/economists/pesenti/whatjap
wor.pdf

http://www.imf.org/external/pubs/ft/fandd/1998/06/imfstaff.htm

http://www.ukessays.co.uk/essays/economics/east-asian-financial-
crisis.php

http://www.360doc.com/content/06/1201/14/13799_279419.shtml
Thank You

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SECTION C-GROUP 9

Presenters & their contribution

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