The Asian Financial Crisis began in July 1997 when Thailand floated its currency, the baht, causing its value to drop and triggering a series of currency devaluations and economic turmoil across Asia. The crisis most severely impacted Indonesia, South Korea, and Thailand as their currencies collapsed, stock markets plunged, real estate prices fell, and numerous companies went bankrupt. The International Monetary Fund orchestrated large bailout packages for the affected countries and imposed structural adjustment programs that required high interest rates, spending cuts, and market liberalization to stabilize currencies and restore investor confidence. While most countries recovered relatively quickly, the crisis had long-lasting economic and political impacts on the region.
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.
In the aftermath of the Asian crisis of 1997, a number of rapid assessments on the extent and nature of the social impact appeared. They brought out the human cost of the crisis in bolder relief. One such study, launched in the last quarter of 1998, was conducted by ADB. It was designed to assist in devising policy responses to the social crisis and identifying reforms that would strengthen social protection systems in the longer term. It covered Indonesia, the Republic of Korea, the Lao Peoples' Democratic Republic, Malaysia, Philippines, and Thailand. It sketched the transmission of social impacts from the crisis, analyzed the crisis effects on prices and employment, discussed the impact on inequality and poverty, looked at human development in terms of education, health, and family planning, touched on social capital, and looked at the environment.
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
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.
In the aftermath of the Asian crisis of 1997, a number of rapid assessments on the extent and nature of the social impact appeared. They brought out the human cost of the crisis in bolder relief. One such study, launched in the last quarter of 1998, was conducted by ADB. It was designed to assist in devising policy responses to the social crisis and identifying reforms that would strengthen social protection systems in the longer term. It covered Indonesia, the Republic of Korea, the Lao Peoples' Democratic Republic, Malaysia, Philippines, and Thailand. It sketched the transmission of social impacts from the crisis, analyzed the crisis effects on prices and employment, discussed the impact on inequality and poverty, looked at human development in terms of education, health, and family planning, touched on social capital, and looked at the environment.
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
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.
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.
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.
September 11, 2013. This presentation I made at the Fellowship Dinner for Chartered Wealth Managers in Manila. The idea of this presentation was to show CWM member, how to look around you and get information. I used Time magazine cover to build the investment climate over the last few years. Second Rule, reduce the use of charts in the investment talks, most investors can not comprehend the X axis and Y axis of a graph in a few seconds and understand the implication. Although, I must admit the pdf version without the relevant talk along with the slides, appears a bit dry.
6. Introduction
Thailand
Thai baht
Real estate
Burden of foreign debt
Southeast Asia and Japan
Slumping currencies
Devalued stock market
Steep rise in private debt.
7. IMF Role
$40 billion program to stabilize the currencies of
South Korea, Thailand, and Indonesia.
Bailouts (rescue packages) for the most affected
economies to enable affected nations to avoid
default.
Structural adjustment package
8. SAP
cut back on government spending to reduce
deficits,
allow insolvent banks and financial institutions to
fail and aggressively raise interest rates.
The reasoning was that these steps would
restore confidence in the nations’ fiscal solvency,
penalize insolvent companies, and protect
currency values.
9. IMF and High Interest Rates
to attain the chain objectives of tightened money supply
discouraged currency speculation
stabilized exchange rate
curbed currency depreciation
ultimately contained inflation.
10. Consequences
significant macro-level effects
including sharp reductions in values of currencies
stock markets
other asset prices of several Asian countries.
The nominal US dollar GDP of ASEAN fell by US$9.2
billion in 1997 and $218.2 billion in 1998.
11. The Currency exchange rate per USD
June 1997 compare to July 1998
Thai baht: 24.5 to 41
Indonesian rupiah: 2,380 to 14,150
Philippine peso: 26.3 to 42
Malaysian ringgit: 2.5 to 4.1
South Korean won: 850 to 1,290
13. Thailand
from 85-96 Thailand grew 9% per year
Highest economic growth rate
Inflation was also low (3.4%-5.7%)
Baht value was 25 to the US Dollar
14. Thailand
May 14-15, 1997 the baht faced very bad speculative
attacks
In June, Prime Minister Yongchaiyudh refused to devalue
the baht
Thai government failed to defend the Baht, starting the
crisis
Baht lost more then half it’s value
Thai stock market dropped 75%
15. Thailand
August 11, 1997, IMF unveiled $17 billion rescue
package
August 20, 1997 IMF approved another $3.9 billion
bailout package
Rumors that former Prime Minister profited from the
devaluation
Finally recovered by 2001, paid off IMF debt in 2003
17. Indonesia
Indonesia was doing good in June 1997
Low inflation
$900+ Million trade surplus
$20 + Billion foreign exchange reserves
Good banking sector
However, many corporations were borrowing in U.S. Dollars
In July 1997, Indonesia widened the rupiah tradin band from
8%-12%
18. Indonesia
On August 14, 1997 the managed floating exchange
regime was replaced by a free-floating system, causing
the rupiah to drop more
IMF created a rescue package of $23 Billion, but didn’t
help
In Sept they hit a all time low, Moody’s rated Indonesia’s
long-term debt to “junk bond” status
More effects were felt in Nov when the summer’s hits
were felt in the corporate books
19. Indonesia
In Feb, the President got rid of the governor of the Bank
of Indonesia, but this wasn’t enough and he was
eventually forced to resign
Effects
Rupiah was 200 to 1 USD, afterward hit 18,000 to 1 USD
Lost 13.5% of GDP
21. South Korea
Large corporations were funding big expansions, however
failed due to excess debt
Moody’s lowered their credit rating from A1 to B2
Seoul stock exchange dropped 4% on Nov 7, 7% on Nov
8, and 7.2% on Nov 24
In 1998 Hyundia took over Kia Motors, Samsung was
dissolved, and Daewoo was sold to American GM
Currency dropped from 800 per dollar to 1,700
National debt-GDP ratio went from 13%-30%
23. Hong Kong
After UK gave control of Hong Kong to China the Hong
Kong dollar was under speculative pressure
Authorities spent more then US $1 Billion to defend local
currency
Had more then US $80 billion in foreign reserves
Stock markets became volatile
In Oct the Hang Seng Index dropped 23%
In Aug 98, interest rates jumped from 8%-23%
overnight, and even 500% once
24. Hong Kong
The Hong Kong Monetary Authority (HKMA) setup a
system to establish rates, however speculators were
taking advantage of this by short selling shares.
HKMA wound up buying HK$120 billion worth of shares
in various companies to combat this
Started selling those share in 2001, profiting HK$30
billion
26. Malaysia
In July 1997, the Malaysian ringgit jumped overnight
from 8% to over 40%
Ratings had fallen from investment grade to junk
Lost 50% of value, from 2.50 to 3.80 to the dollar
Output of real economy declined
Construction dropped 23%
Manufacturing 9%
Agriculture 5.9%
GDP 6.2%
27. Malaysia
IMF aid was refused
Various task forces were formed to fix economy
By 2005 had a surplus of US$14.04 billion
29. Singapore
Singapore dipped into a short recession
Government kept very active management to ensure
security
Government programs were put forward
Made no attempt to help capital markets, instead
allowed a 60% drop, however within a year fully
recovered and continued to grow
30. Less Affected Countries
China, The US, and Japan were very strong economies
and were able to survive
China held most of it’s foreign investments were in
factories rather then securities
U.S. didn’t collapse, but on Oct 27,1997 the Dow Jones
fell 554 points (7.2%)
Japan was affected because the economy is so prominent
(yen fell to 147), but it was world’s largest holder of
currency reserves so it bounced back quickly
31. Conclusion
Many businesses collapsed and millions of people fell
below the poverty line
Indonesia, South Korea, and Thailand were most affected
Heavy U.S. investment shifted from Thailand to Europe
Many countries pushed for corporate governing to avoid
problems later
Investors were reluctant to lend to developing countries
32. References
Kaufman, GG., Krueger, TH., Hunter, WC. (1999) The
Asian Financial Crisis: Origins, Implications and Solutions.
Springer.
Weisbrot, Mark (August 2007). Ten Years After: The
Lasting Impact of the Asian Financial Crisis
http://en.wikipedia.org/wiki/1997_Asian_Financial_Crisis
Tecson, Marcelo L. (2009), "IMF Must Renounce Its
Weapon of Mass Destruction: High Interest Rates"