Asian Economic Crisis

Slide 1: By: Saurabh Damani & Vishwesharaya

Slide 2: • 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 :!!!

Slide 3:  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.

Slide 4:  Capital Inflows  0% export growth in 1996  Current Account Deficits  Carry Trade  Asset Bubble  Currency speculation-role of hedge funds.

Slide 5:  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

Slide 6: • 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

Slide 7:  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

Slide 8:  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

Slide 9:  Poor Regulation of the Economy  Over-Inflated Asset Prices  Macroeconomic Policy: Fixed Exchange Rates

Slide 12:  Fall in equity markets, foreign exchange markets and rises in interest rates

Slide 13:  Equity Markets

Slide 15: • 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

Slide 16:  Financial Assistance : World bank ,ADB  Fiscal & Monetary policy revision  Restructuring  What did it do wrongly?

Slide 17: • 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

Slide 18: • 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

Slide 19: • 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?

Slide 20: • 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