• BEFORE THE CRISIS
• Effects of the Crisis on Economies in the
• The Global Impact of the Asian Crisis
• Preventing Future Crises
• Placement time :!!!
Tiger economies –
Export oriented and Pegged Currencies
World bank endorses their spectacular
Growth rates of 7% in 1970s to 9% in 1990s
Chinese devalue Yuan by 50%,US Dollar
appreciate 40% against Yen.
0% export growth in 1996
Current Account Deficits
Currency speculation-role of hedge funds.
Thai stock market dropped 75% in 1997
By the end of the year, fifty-six Thailand
finance houses are closed down.
Led to first ever devaluation of an Asian Crisis
Devaluations vis-à-vis the dollar average 20%
to 30% in Thailand, Indonesia, Malaysia and
• Seven high-profile bankruptcies of Korean
conglomerates, such as Hanbo Steel and Kia
• The Philippines abandons its dollar-peg
Overnight interest rates are raised to 32%
• Indonesian authorities close 16 insolvent
• Malaysia also abandons its pegged exchange
Hong Kong overnight interest rates rise to
Hang Seng index fall 23% in three days
The largest investment bank in Hong Kong,
Peregrine Securities, goes bankrupt
The IMF organises a $58.2 billion rescue for
The IMF puts together a $17.2 billion Thai
Indonesia finalises a deal with the IMF for
funding that could total up to $42.3 billion
Poor Regulation of the Economy
Over-Inflated Asset Prices
Macroeconomic Policy: Fixed Exchange
Fall in equity markets, foreign exchange markets and rises in
• Interest rates
--- Indonesia 300% … Thailand : tightens
monetary policy interest rates peaked at 20%
• Real economy
--severe contraction in real economic activities
--increase in corporate bankruptcies
--devaluation & exports
Financial Assistance : World bank ,ADB
Fiscal & Monetary policy revision
What did it do wrongly?
• negative ‘wealth effect’ on investors across the
world Falls in Equity Markets
• International Trade :brake on the growth of
exports from the major economies . 5% of GDP
in Japan, 1½% of GDP in Europe and 3% in the
• Import side : prices slashed
• Foreign Direct Investment : cut back severely
• Economic Growth :constant downward revision
of economic growth forecasts
• universal tax on currency transactions to deter
speculation by the markets
• Improve global regulation, which would involve the
IMF, the World Bank and other regulators
• Creating a process of active and transparent
surveillance of borrowing nations
• Creating a Code of Best Practice on social policy issues,
so that financial crises, if they do occur, do not result in
disproportionate increases in poverty within developing
• enhancing regional surveillance :ASEAN
• the provision of fuller economic and financial
information to the public by governments, financial
institutions, and corporations
• Financial contagion
• How does financial contagion occur?
• why is it important, and is there anything
that can be done about it?
• What do you think caused the Asian crisis?
Do you think the affected countries are
now on the right track for recovery?
• Following the Asian crisis I would like to ask
you whether there are any ways foreign
investors/risk managers are able to predict
instances of political instability?
• Are the hedging of currencies and the use
of credit derivatives viable options to avoid
losses in the event of currency crises?
• Asian crisis v/s subprime : similarities and