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East AsianEconomic Crisis        HUL 214International Economics           Made by:                      Ankit Kumar (2010M...
AGENDA• Countries Affected• Before the Crisis• Causes• Speculative Attacks• Thailand• Effects• Asian Weaknesses• IMF’s rol...
COUNTRIES AFFECTED         Thailand.         Hong Kong         Taiwan         Singapore         South Korea.        ...
BEFORE THE CRISISIn 1993 the World Bank had coined the term the EastAsian Miracle to describe the vilified economies of th...
CAUSESDomestic:1.)   Weak and ineffective govt policies2.)   Ill judgment of the banks and financial institutions3.)   Ove...
CAUSESGlobal financial system:1.)    Liberalisation across the world (as the legal basis)2.)    The increasing interconnec...
CAUSESCurrency depreciation and debt crisisMalaysia: retained a key control in itsfinancial liberalisation                ...
CAPITAL FLOW ACROSS BORDERS                      Foreign exchange                      transactions                      S...
SPECULATIVE ATTACKS In the past also, countries had faced a similar fate - sudden currency depreciations due to speculativ...
SPECULATIVE ATTACKS                Capital flow in developing Asian countries                     200                     ...
THAILAND• Started with Thailand• Thailand was suffering from huge current  account deficit which was financed by short-  t...
EFFECTS (In Asia) Sharp reductions in values of • currencies, • stock markets, • asset prices of several Asian countries. ...
EFFECTS (In Asia) Per capita income in• Thailand declined from $8,800 to $8,300 between  1997 and 2005;• Malaysia it decli...
EFFECTS (Outside Asia) After the crisis, international investors were reluctant to lend to developing countries, leading t...
ASIAN WEAKNESSESWeaknesses that became apparent after the crisis:  1. Productivity: economic expansion before crisis     l...
IMF’s Role             16
IMF’s Role• IMF treated the Asian financial crisis like other situations where  countries could not meet their balance of ...
IMF’s Role• Malaysia stood out as a country that refused  IMF assistance and advice. Instead of further  opening its econo...
CONCLUSIONSCapital-account liberalization• In terms of govt. strategy, the more important  decision is not to become more ...
AFTERMATH• Recovery in the Asian crisis countries took time, but it  was stronger and more rapid than had been typical in ...
Thank You            21
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East Asian Crisis

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East Asian Crisis

  1. 1. East AsianEconomic Crisis HUL 214International Economics Made by: Ankit Kumar (2010ME20765) Vatsal Dusad (2010TT10971) 1
  2. 2. AGENDA• Countries Affected• Before the Crisis• Causes• Speculative Attacks• Thailand• Effects• Asian Weaknesses• IMF’s role 2
  3. 3. COUNTRIES AFFECTED  Thailand.  Hong Kong  Taiwan  Singapore  South Korea.  Malaysia  Indonesia. 3
  4. 4. BEFORE THE CRISISIn 1993 the World Bank had coined the term the EastAsian Miracle to describe the vilified economies of theSouth East.From 1985 to 1996, growth rate averaging almost 9%annually - increased pressure on Thailands currency,the Baht. 4
  5. 5. CAUSESDomestic:1.) Weak and ineffective govt policies2.) Ill judgment of the banks and financial institutions3.) Over-speculation in real estate and the share market4.) Collusion between governments and businesses5.) The bad policy of having fixed exchange rates6.) High current account deficits 5
  6. 6. CAUSESGlobal financial system:1.) Liberalisation across the world (as the legal basis)2.) The increasing interconnection of markets and speed of transactions through computer technology (as the technological basis) 6
  7. 7. CAUSESCurrency depreciation and debt crisisMalaysia: retained a key control in itsfinancial liberalisation 7
  8. 8. CAPITAL FLOW ACROSS BORDERS Foreign exchange transactions Short-term investments 8
  9. 9. SPECULATIVE ATTACKS In the past also, countries had faced a similar fate - sudden currency depreciations due to speculative attacks or large outflows of funds.Latin American countries 1980sMexico 1994and Norway early 1990sDepriciation - as a result of un-predicted inflow andoutflow on capital 9
  10. 10. SPECULATIVE ATTACKS Capital flow in developing Asian countries 200 150In US $ (billions) 100 50 0 1994-95 1996 1997 (first half) 1997 (second -50 half) -100 -150 10
  11. 11. THAILAND• Started with Thailand• Thailand was suffering from huge current account deficit which was financed by short- term capital inflows• Baht was pegged to the USD• Thai government was forced to float the baht - due to lack of foreign currency to support its fixed exchange rate 11
  12. 12. EFFECTS (In Asia) Sharp reductions in values of • currencies, • stock markets, • asset prices of several Asian countries. The nominal U.S. dollar GDP of ASEAN (Association of South East Asian Nations) fell by US$9.2 billion in 1997 and $218.2 billion (31.7%) in 1998. 12
  13. 13. EFFECTS (In Asia) Per capita income in• Thailand declined from $8,800 to $8,300 between 1997 and 2005;• Malaysia it declined from $11,100 to $10,400. The unemployment rate in Korea increased to 6.8 per cent in 1998 and then to 8.4 per cent in the first quarter of 1999. The crisis also led to a dramatic rise in lending rates within the region, especially in Indonesia and the Philippines. 13
  14. 14. EFFECTS (Outside Asia) After the crisis, international investors were reluctant to lend to developing countries, leading to economic slowdowns in developing countries in many parts of the world. Many nations learned from this, and quickly built up foreign exchange reserves as a hedge against attacks, including Japan, China, South Korea. 14
  15. 15. ASIAN WEAKNESSESWeaknesses that became apparent after the crisis: 1. Productivity: economic expansion before crisis later explained by the rapid growth of production inputs (capital and labor) – but relatively little increase in productivity 2. Banking Regulation: Ineffective government supervision 3. Exchange rate regimes- Mostly pegged exchange rate system. 4. Legal Framework: lack of structured legal framework to deal with bankruptcy 15
  16. 16. IMF’s Role 16
  17. 17. IMF’s Role• IMF treated the Asian financial crisis like other situations where countries could not meet their balance of payment obligations with a condition to adopt structural adjustment policies.• But the Asian crisis differed from the normal situation of countries with difficulties paying off foreign loans. The Asian governments were generally not running budget deficits. Yet the Fund instructed them to cut spending -- a recessionary policy that deepened the economic slowdown.• The Fund also failed to manage an orderly roll over of short-term loans to long-term loans, which was most needed; and it forced governments, including in South Korea and Indonesia to guarantee private debts owed to foreign creditors. 17
  18. 18. IMF’s Role• Malaysia stood out as a country that refused IMF assistance and advice. Instead of further opening its economy, Malaysia imposed capital controls, in an effort to eliminate speculative trading in its currency. Malaysia generally suffered less severe economic problems than the other countries embroiled in the Asian financial crisis. 18
  19. 19. CONCLUSIONSCapital-account liberalization• In terms of govt. strategy, the more important decision is not to become more open to capital flows, but in the how those governments chose to become more open.• Focusing on those measures that will enable an economy to be more flexible and to adapt more quickly to change ultimately will be a more effective policy strategy.
  20. 20. AFTERMATH• Recovery in the Asian crisis countries took time, but it was stronger and more rapid than had been typical in other emerging market financial crises. Barely 18 months after the crisis, for example, Korean GDP had returned to pre-crisis levels• The countries directly affected by the crises a decade ago are fundamentally stronger. The balance sheet weaknesses have been transformed into strength.• Stronger legal and institutional frameworks have helped create an environment in which enterprise is thriving.
  21. 21. Thank You 21

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