By: Saurabh Damani & Vishwesharaya

BEFORE THE CRISIS Thailand Events CAUSES Effects of the Crisis on Economies in the Region IMF The Global Impact of the Asian Crisis Preventing Future Crises Placement time :!!!

BEFORE THE CRISIS

Thailand

Events

CAUSES

Effects of the Crisis on Economies in the Region

IMF

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 story Growth rates of 7% in 1970s to 9% in 1990s Chinese devalue Yuan by 50%,US Dollar appreciate 40% against Yen.

Tiger economies –

Export oriented and Pegged Currencies

World bank endorses their spectacular growth story

Growth rates of 7% in 1970s to 9% in 1990s

Chinese devalue Yuan by 50%,US Dollar appreciate 40% against Yen.

Capital Inflows 0% export growth in 1996 Current Account Deficits Carry Trade Asset Bubble Currency speculation-role of hedge funds.

Capital Inflows

0% export growth in 1996

Current Account Deficits

Carry Trade

Asset Bubble

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 currency Devaluations vis-à-vis the dollar average 20% to 30% in Thailand, Indonesia, Malaysia and the Philippines

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 currency

Devaluations vis-à-vis the dollar average 20% to 30% in Thailand, Indonesia, Malaysia and the Philippines

Seven high-profile bankruptcies of Korean conglomerates, such as Hanbo Steel and Kia Motors The Philippines abandons its dollar-peg Overnight interest rates are raised to 32% Indonesian authorities close 16 insolvent banks Malaysia also abandons its pegged exchange rate

Seven high-profile bankruptcies of Korean conglomerates, such as Hanbo Steel and Kia Motors

The Philippines abandons its dollar-peg Overnight interest rates are raised to 32%

Indonesian authorities close 16 insolvent banks

Malaysia also abandons its pegged exchange rate

Hong Kong overnight interest rates rise to 280%, Hang Seng index fall 23% in three days The largest investment bank in Hong Kong, Peregrine Securities, goes bankrupt

Hong Kong overnight interest rates rise to 280%,

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 Korea The IMF puts together a $17.2 billion Thai rescue Indonesia finalises a deal with the IMF for funding that could total up to $42.3 billion

The IMF organises a $58.2 billion rescue for Korea

The IMF puts together a $17.2 billion Thai rescue

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 Rates

Poor Regulation of the Economy

Over-Inflated Asset Prices

Macroeconomic Policy: Fixed Exchange Rates

Fall in equity markets, foreign exchange markets and rises in interest rates

Fall in equity markets, foreign exchange markets and rises in interest rates

Equity Markets

Equity Markets

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

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 Restructuring What did it do wrongly?

Financial Assistance : World bank ,ADB

Fiscal & Monetary policy revision

Restructuring

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 US . Import side : prices slashed Foreign Direct Investment : cut back severely Economic Growth : constant downward revision of economic growth forecasts

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 US .

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 countries. enhancing regional surveillance :ASEAN the provision of fuller economic and financial information to the public by governments, financial institutions, and corporations

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 countries.

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?

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 dissimilarities ?

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 dissimilarities ?