This document provides an overview of the 1997 East Asian Financial Crisis, including:
1. It describes the economic growth and policies of East Asian countries prior to the crisis, known as the "East Asia Miracle".
2. It then outlines some of the key reasons for the crisis, including short-term foreign borrowing by banks and corporations and weaknesses in financial systems.
3. It examines the effects on specific countries, with Thailand, Indonesia, and South Korea being hit hardest by currency devaluations and economic downturns.
4. It also discusses the more moderate impact on countries like China and Singapore and the role of the IMF in providing bailout packages with strict reform conditions.
The Asian financial crisis was a period of financial crisis that gripped much of East Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion.
Financial contagion refers to “the spread of market disturbances -- mostly on the downside -- from one country to the other, a process observed through co-movements in exchange rates, stock prices, sovereign spreads, and capital flows." Financial contagion can be a potential risk for countries who are trying to integrate their financial system with international financial markets and institutions. It helps explain an economic crisis extending across neighboring countries, or even regions.
Asian Financial Crisis in 1997
Asia before Financial Crisis
Beginning of Asian Financial Crisis
Affected countries from Asian financial Crisis
End of Asian Financial Crisis
IMF role during Asian financial crisis
3 Causes of Asian Financial Crisis
Impact of Asian Financial Crisis to:
Thailand
Philippines
Malaysia
Japan
How these countries overcame the Crisis
Current developments to Avoid future financial crisis
Impact of IMF loan on Pakistan's economy: In long run and short runAyesha Majid
To keep the balance of payments in check and to meet the financial obligations government of Pakistan has signed 13th bailout with IMF. This bailout has laid several conditions on the Pakistani government including those on taxes and subsidies, government spending, interest rate, foreign exchange rate and Pakistan's borrowing from China.
Whether the program turns to be beneficial or detrimental for the economy depends how the public responds to the measures and how thoughtfully the government implements it.
The economic success of the Asian Tigers resulted from their own efforts. Each country largely followed the Japanese model of export-led development: they began with exports of the cheapest products, educated their citizens so that they would be knowledgeable workers, and then increased the value of the products that were being exported. Today, South Korea, for instance, is the home of technology giants Samsung and LG, both of which have benefited immensely from government policies that promoted education. Singapore, meanwhile, has become a global trading and banking hub-another example of expertise in a high-value industry.
The four Asian Tigers, Asian Dragons and Asian Miracles are various terms used to refer to the highly developed economies of
Hong Kong
South Korea
Singapore
Taiwan
The Asian financial crisis was a period of financial crisis that gripped much of East Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion.
Financial contagion refers to “the spread of market disturbances -- mostly on the downside -- from one country to the other, a process observed through co-movements in exchange rates, stock prices, sovereign spreads, and capital flows." Financial contagion can be a potential risk for countries who are trying to integrate their financial system with international financial markets and institutions. It helps explain an economic crisis extending across neighboring countries, or even regions.
Asian Financial Crisis in 1997
Asia before Financial Crisis
Beginning of Asian Financial Crisis
Affected countries from Asian financial Crisis
End of Asian Financial Crisis
IMF role during Asian financial crisis
3 Causes of Asian Financial Crisis
Impact of Asian Financial Crisis to:
Thailand
Philippines
Malaysia
Japan
How these countries overcame the Crisis
Current developments to Avoid future financial crisis
Impact of IMF loan on Pakistan's economy: In long run and short runAyesha Majid
To keep the balance of payments in check and to meet the financial obligations government of Pakistan has signed 13th bailout with IMF. This bailout has laid several conditions on the Pakistani government including those on taxes and subsidies, government spending, interest rate, foreign exchange rate and Pakistan's borrowing from China.
Whether the program turns to be beneficial or detrimental for the economy depends how the public responds to the measures and how thoughtfully the government implements it.
The economic success of the Asian Tigers resulted from their own efforts. Each country largely followed the Japanese model of export-led development: they began with exports of the cheapest products, educated their citizens so that they would be knowledgeable workers, and then increased the value of the products that were being exported. Today, South Korea, for instance, is the home of technology giants Samsung and LG, both of which have benefited immensely from government policies that promoted education. Singapore, meanwhile, has become a global trading and banking hub-another example of expertise in a high-value industry.
The four Asian Tigers, Asian Dragons and Asian Miracles are various terms used to refer to the highly developed economies of
Hong Kong
South Korea
Singapore
Taiwan
A Case Study Analysis on the Asian Financial Crisis of 1997 and Zapa ChemicalsSadman Ahmed
Asian Financial Crisis of 1997:-
The Asian crisis was one of the worst financial disasters in the history of Thailand. The investors moved away large sums money away, inflation spiraled out of control, and it ultimately put pressure on the exchange rates of the Baht. Due to Thailand’s problems alone, the effect of the crisis spread along different countries in Asia. The impacts prove how integrated the economies of today are. Much of the fault lies on the failed policies of the government and weak regulatory regime.
Zapa Chemicals (risk management)
The exchange rate exposure and the legal hurdles can be quite a burden when transferring funds across the borders. In the case of Zapa Chemicals, the tax filing problem did not help them to transfer funds. They didn’t know when exactly the funds would be available for receiving. The risk management of the firm is quite a hefty task for foreign companies to successfully pursue.
Presentation talks about the crisis faced by Korea,Indonesia,Malaysia.
Some of the important reasons being BOP Deficits and Inefficient Financial Systems, drop in GDP and increase in Unemployment rate etc.
Bubble Spotting - The East Asia Currency and Debt crisis of 1997Benjamin Van As
During the 1990s, various Eastern Asia economies grew at double-digit figures, and exports grew at well over 10% pa. in some cases.
Then the party ended with a bang as the Currency and Debt Bubble popped, the impact of which could be felt in markets around the world.
This presentation (which forms part of a larger series on Market Bubbles) gives a short overview on what happened.
South East Asian Crisis is one of the massive crisis witnessed by Asia. It is considered as the deadly crisis happened ever in the history. The crisis started in Thailand by the colapse of Thai Bhatt and later spread to other Asian Countries. The crisis also affected countries like South Korea, Indonesia, Singapore and so on.
The secret way to sell pi coins effortlessly.DOT TECH
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@Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
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#pinetwork
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I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
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@Pi_vendor_247
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1. MBA 502 - Macroeconomics
EAST ASIAN FINANCIAL CRISIS
(1997)
DİLAN SÜSLÜ
GÖKHAN TUFAN
NİLÜFER SORMAZ
TANER YILDIRIM
Spring 2014 12.05.2014
2. Outline
1. Before the East Asia Crisis (East Asia Miracle)
2. Reasons of the East Asia Crisis
3. Countries Effected by the Crisis
Most Effected
Thailand
Indonesia
South Korea
Moderately Effected
Singapore
China
4. East Asia Crises and IMF
5. East Asia Crises and Turkey
6. Lessons Learned
East Asia Crisis
2
3. East Asia Countries
South Korea
Indonesia
Philippines
Hong Kong
Singapore
Malaysia
Taiwan
Thailand
East Asia Crisis
3
Source:http://en.wikipedia.org/wiki/1997_Asian_financial_crisis
4. Four Asian Tigers
The Four Asian Tigers or Asian Dragons are the highly developed
economies of Hong Kong, Singapore, South Korea and Taiwan.
These regions were the first newly industrialized countries, noted
for maintaining exceptionally high growth rates and rapid
industrialization between 1960’s and 1990’s.
All four Asian Tigers had highly educated and skilled workforce and
had specialized in areas where they had a competitive advantages.
Hong Kong and Singapore World-leading
international financial centers
South Korea and Taiwan World leaders in
manufacturing information technology
East Asia Crisis
4
5. Tiger Cub Economies
Their economic success stories have served as role
models for many developing countries, especially the
Tiger Cub Economies. (Indonesia, Malaysia,
Philippines and Thailand)
They sustained rapid growth for decades.
Each nation was non-democratic and had relatively
authoritarian political systems during the early
years.
East Asia Crisis
5
6. East Asia Miracle
The success of the economic growth of the east
Asia nations is called East Asia Miracle.
Many factors have been identified as the cause of
East Asia's relative success but the most important
key is their export oriented policy.
Each focused on exports to rich industrialized
nations.
East Asia Crisis
6
7. Before East Asian Crisis (1960-
1990)
Export policy
High growth rate and rapid industrialization
Decrease the number of import
High tariff on import
Undervalue their currency
Increase in public and private savings
Investment in physical and human capital
Investment on education and rate of literate is increased
Reached industrial countries level of development
Productivity growth
East Asia Crisis
7
8. Kept budget deficit in limit
Authoritarian political systems
Low inflation
Stable and real interest rates
High interest rate
Attract foreign investors for high rate of return
High rate of return
Increased capital investments, high per capita income
Before East Asian Crisis (1960-
1990)
East Asia Crisis
8
11. Per Capita Gross National Product (GNP)
Growth
The growth of per capita GNP has been extraordinary high in East Asia in 1985-1995
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
thailand
china
south
korea
singapore
indonesia
malaysia
hongkong
philippines
Avg. per capita GNP growth btw 1985-1995*
* World Bank,1997
Over this period, growth in all low-middle income economies was a mere 0.4%, while
that of all high income economies was only 0.8%.
East Asia Crisis
11
12. Beginning of Crisis
At the end of 1996
0%
20%
40%
60%
80%
100%
loans with maturity <=1
loans with maturity
<=1
East Asia Crisis
12
* World Bank,1997
13. Before Crisis
Decrease in bank lending caused to
increase in cross border bank loans.
The rapid reversal of private capital inflows
into Asia.
East Asia Crisis
13
14. Reasons of the East Asian Crisis
Panic and disorderly workout
Education
Banks
short term of liabilities of Thailand exceeded
international reserves
rapid industrialization and high growth rate
PANIC
very weak and fragile financial system and auditing system
Loans from foreign banks
East Asia Crisis
14
Fixed Exchange Rate
15. Panic Causes to :
A lot of investors withdraw their funds from these nations.
Huge outflow was occurred.
Net private inflows dropped from $93 B to -$12.1 B.
nations cannot control their current deficit
East Asia Crisis
15
17. Triggering Events
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 (BOT) lent over 200 billion
baht ($8 billion) to distressed financial institutions
through Financial Institutions Development Fund
(FIDF).
Usable reserve levels of Central Bank fell sharply.
East Asia Crisis
17
18. Thailand
The devaluation of the Chinese renminbi, and the Japanese yen,
raising of US interest rates lost competitiveness
Huge foreign debt
Wrong investments with foreign debt: large part of the capital had
been put into non-productive sectors especially real estate
May 1997: Thai Baht was hit massive speculative attack. The
government failed to defend the Baht against international speculators.
East Asia Crisis
18
19. Thailand
Devaluation of Baht: 1$ became 56 Baht in Jan ’98.
The Central Bank ran out of Foreign Reserves.
58 out of 91 banks were closed.
Exports declined significantly.
Lost major customers such as U.S. and Europe.
East Asia Crisis
19
Baht/$
20. Indonesia
Large number of Indonesian corporations had been borrowing in USD.
As rupiah had strenghted respective to dollar, this strategy worked well.
Companies had decrease their effective levels of debt and financial costs as
local currency value rose.
In June 1997, Indonesia seemed far from crisis.
Unlike Thailand, Indonesia has
Low inflation
Trade surplus more than $900 Million
Huge foreign exchange reserves of more than $20 Billion
Causes of the crisis
The stock of private forign debt is very large and generally short term, has
created conditions for instability
Weakness in the banking system
Lack of transperancy
Lack of protection and legal certainty
East Asia Crisis
20
21. Devaluation of Rupiah
Thailand floated Baht,
Indonesia widened Rupiah
band from 8% to 12%
Speculative attacks to
rupaih began
Floating exchange regime
was placed
Signed first letter with IMF
Second letter of intent with IMF
In November, crisis intensified effects
of crisis seen on balance sheets
Third letter of intent with IMF
83,2% change
East Asia Crisis
21
Source: www.tradingeconomics.com/indonesia/currency
22. Results of the Crisis – Indonesia
Short term interest rates increased
sharply.
Corporations went bankrupcy.
Some corporations are forced stop
production and forced to lay off.
For banks, lending money
decreased, borrowing money
increased.
Lose more than 1/3 foreign reserves.
Stock prices decline more than 66%.
At the end of the year foreign cash
flow nearly stopped.
From 239 banks 16 closed.
Reforms in banking system.
-15
-10
-5
0
5
10
15
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
GDP Growth of Indonesia
Indonesia
Years
Growth Percentage
East Asia Crisis
22
Source: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
23. South Korea
Less productivity and increments in wages
High interest rates increased foreign borrowing
In 1994: 14%
In 1997: 25%
Weaknesses in the balance sheet of banks and corporations
Government related
Won pegged to US dollar
Financial institutional inadequacies (Implicit government guarantees and
forcing excessive lending)
Political uncertainties (coming elections in Dec 1997)
Open economy policy (price shocks and global trade volatility)
Loss of competitiveness to other countries
Slowdown of exports and economic growth
East Asia Crisis
23
24. Results of the Crisis – South Korea
Jan 1997 - Corporate bankruptcies:
Hanbo Steel, Sammi Group,
Dainong Corp, Ssangyoung group,
Kia Motors
Drastic devaluation of the Won from
1,000 to 1,700 for 1$
The Stock Exchange Rate index fell
from 1000 to 450
National debt to GDP ratio became
more than doubled
Major setback in automobile industry
Credit rating of the country: A1 to B2
Unemployment rate: Increase from
2% (1995) to 7% (1998)
Decrease in Gross National Product)
GNP per capita: $9,511 to $6,823
GDP Growth % of South Korea
FX Rate and Reserves in South KoreaEast Asia Crisis
24
Source: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
26. China
• Not affected too much because;
o high growth
o unconvertible currency
o huge amount of reserves
• Growth rate decreased because;
o Capital/Product coefficient of China had increased
o Transferring resources from seaside (where productivity and
efficiency are high )
o Administrative and production costs increased
o Expected slowdown in direct foreign capital inflow via
technological inflow
East Asia Crisis
26
27. Singapore
• decrease of the demand from other Asia countries
o income effect
o increase of the Singapore Dollar against other Asia
currencies
• 70% rise of the labor cost
o 2/3 of the demand is foreign based
Growth rate of Singapore - decreased from 7.8% to
1.5% in 1998
East Asia Crisis
27
28. Singapore cont’d
• Government;
o Bailout packet
Long term
Short term
decreasing labor cost by 15%.
shortening the deductions from labor costs
removing variable costs
• Ministry of Finance;
o took precautionary measures
increase internal consumption
stopping the slowing down in the economy
Government expenditure had increased 6%
tax rates had been decreased
various funds are transferred to local enterprises
East Asia Crisis
28
29. IMF and The Asian Financial Crisis
Bailout packages amounted to $95 billion.
High interest rates, decrease in government spending, increase
in taxes, devaluation of currency.
Allow insolvent banks and financial institutions to fail.
Major restructuring in banking system.
Increased transparency.
East Asia Crisis
29
30. IMF Criticism on Asian Crisis
Recession
Could not manage to roll over of short term loans to long term loans
World Bank Chief Economist Joseph Stiglitz:
“Most of the policies were mistake. The problem was not
government, as in Latin America; the problem was an private sector-
-all those bankers and borrowers, for instance, who'd gambled on the
real estate bubble.”
East Asia Crisis
30
31. East Asian Crisis & Current Situation of Turkey
EAST ASIAN ECONOMIES
Rapid Growth Rate
Foreign Loan Credits – Short
Term
Fixing Exchange Rate Policy
Weakness In Financial System
(Banking Sector, Regulations)
No Credit Risk Management
TURKEY
Rapid Growth Rate
Foreign Loan Credits – Long
Term
Floating Exchange Rate Policy
After 2001 crisis, financial system
stronger
Well Managed Credit Risk
East Asia Crisis
31
32. GDP GROWTH RATE COMPARISON
East Asia Crisis
32
-15
-10
-5
0
5
10
15
1990 1991 1992 1993 1994 1995 1996 1997 1998
GDP Growth (annual %)
Indonesia
Korea, Rep.
Thailand
-6
-4
-2
0
2
4
6
8
10
12
2004 2005 2006 2007 2008 2009 2010 2011 2012
Turkey GDP Growth (annual %)
34. Lessons Learned
Superiority of a pure floating exchange rate system over a
managed floating system.
Maintanence of fixed exchange rates encouraged external borrowing and led to
excessive exposure to foreign exchange risk.
As economies pegged to USD, in valuation in USD
caused countries’ exports to become more expensive and less competitive.
Well functioning financial system
Importance of foreign investors’ confidence.
Transparency on business and goverment level is critical.
East Asia Crisis
34
35. References
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.Z
G
www.tradingeconomics.com/indonesia/currency
http://emlak.kanald.com.tr/haber/Sektorden_Haberler/Prof_
Dr_Erinc_Yeldan_Turkiyeyi_emlak_krizi_bekliyor/54593.as
px
http://www.nber.org/chapters/c11011.pdf
http://www.un.org/esa/analysis/pastmeetings/rude.pdf
http://www.research.stlouisfed.org
http://en.wikipedia.org/wiki/1997_Asian_financial_crisis
World Bank,1997
IMF, 1998
East Asia Crisis
35
over this period, groth in all low-middle income economies was a mere 0.4%, while that of all high income economies was only 0.8%.(World Bank,1997)
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.
The sudden drop in bank lending followed a sustained period of large increases in cross border bank loans.
The rapid reversal of private capital inflows into Asia.
Net private inflows dropped from $93 billion to -$12.1 billion.
in order to kept the current deficit in limit in their economic limits
Loans used:
unsound financial instruments
real estate sector, for that reason paybacks also could not be paid totally. Besides that, loans were given an excessive lending to risky and low-profitability projects. (crony capitalism were occurred due to the political pressure )
The devaluation of the Chinese renminbi, and the Japanese yen, raising of US interest rates which led to a strong U.S. dollar, the sharp decline in semiconductor prices; adversely affected their growth. (since Baht was pegged to the U.S dollar)
At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. (Thinking that growth will be forever)
Wrong investments with foreign debt: large part of the capital had been put into non-productive sectors especially real estate. Those sectors were non-productive because they produced non-tradable goods which were sold only domestically, resulting in less national volume of exports and thus weaken the economy’s balance of trade as well as the capital account.