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Asia Financial Crisis

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Asia Financial Crisis
By: Phong Van and Sandeep Kumar
History
п‚— Before 1997, Asia was attractive
By developing countries
High interest rates
 “Asian economic miracle”
Four Asian Tigers
Introduction
п‚— July 1997
п‚— Countries
most affected
by the Asian
Financial
Crisis.
Introduction
п‚— Most affected:
п‚—
п‚—
п‚—
п‚—
п‚—
п‚—
п‚—
Indonesia
South Korea
Thailand
Hong Kong
Malaysia
Lao
Philippines
Introduction
п‚— Least affected
п‚—
п‚—
п‚—
п‚—
п‚—
People’s Republic of China
India
Taiwan
Singapore
Vietnam
Introduction
п‚— Thailand
п‚— Thai baht
п‚— Real estate
п‚— Burden of foreign debt
п‚— Southeast Asia and Japan
п‚— Slumping currencies
п‚— Devalued stock market
п‚— Steep rise in private debt.
IMF Role
п‚— $40 billion program to stabilize the currencies
of South Korea, Thailand, and Indonesia.
п‚— Bailouts (rescue packages) for the most
affected economies to enable affected nations
to avoid default.
п‚— Structural adjustment package
SAP
п‚— cut back on government spending to reduce
deficits,
п‚— allow insolvent banks and financial institutions
to fail and aggressively raise interest rates.
п‚— The reasoning was that these steps would
restore confidence in the nations’ fiscal
solvency, penalize insolvent companies, and
protect currency values.
IMF and High Interest Rates
п‚— to attain the chain objectives of tightened money supply
п‚— discouraged currency speculation
п‚— stabilized exchange rate
п‚— curbed currency depreciation
п‚— ultimately contained inflation.
Consequences
п‚— significant macro-level effects
п‚— including sharp reductions in values of currencies
п‚— stock markets
п‚— other asset prices of several Asian countries.
п‚— The nominal US dollar GDP of ASEAN fell by US$9.2
billion in 1997 and $218.2 billion in 1998.
The Currency exchange rate per USD
June 1997 compare to July 1998
п‚— Thai baht: 24.5 to 41
п‚— Indonesian rupiah: 2,380 to 14,150
п‚— Philippine peso: 26.3 to 42
п‚— Malaysian ringgit: 2.5 to 4.1
п‚— South Korean won: 850 to 1,290
Thailand
Thailand
п‚— from 85-96 Thailand grew 9% per year
п‚— Highest economic growth rate
п‚— Inflation was also low (3.4%-5.7%)
п‚— Baht value was 25 to the US Dollar
Thailand
п‚— May 14-15, 1997 the baht faced very bad speculative
attacks
п‚— In June, Prime Minister Yongchaiyudh refused to
devalue the baht
п‚— Thai government failed to defend the Baht, starting the
crisis
 Baht lost more then half it’s value
п‚— Thai stock market dropped 75%
Thailand
п‚— August 11, 1997, IMF unveiled $17 billion rescue
package
п‚— August 20, 1997 IMF approved another $3.9 billion
bailout package
п‚— Rumors that former Prime Minister profited from the
devaluation
п‚— Finally recovered by 2001, paid off IMF debt in 2003
Indonesia
Indonesia
п‚— Indonesia was doing good in June 1997
п‚—
п‚—
п‚—
п‚—
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%
Indonesia
п‚— 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
Indonesia
п‚— 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
п‚— Effects
п‚— Rupiah was 200 to 1 USD, afterward hit 18,000 to 1 USD
п‚— Lost 13.5% of GDP
South Korea
South Korea
п‚— Large corporations were funding big expansions, however
failed due to excess debt
 Moody’s lowered their credit rating from A1 to B2
п‚— Seoul stock exchange dropped 4% on Nov 7, 7% on Nov
8, and 7.2% on Nov 24
п‚— In 1998 Hyundia took over Kia Motors, Samsung was
dissolved, and Daewoo was sold to American GM
п‚— Currency dropped from 800 per dollar to 1,700
п‚— National debt-GDP ratio went from 13%-30%
Hong Kong
Hong Kong
п‚— After UK gave control of Hong Kong to China the Hong
Kong dollar was under speculative pressure
п‚— Authorities spent more then US $1 Billion to defend
local currency
п‚— Had more then US $80 billion in foreign reserves
п‚— Stock markets became volatile
п‚— In Oct the Hang Seng Index dropped 23%
п‚— In Aug 98, interest rates jumped from 8%-23%
overnight, and even 500% once
Hong Kong
п‚— The Hong Kong Monetary Authority (HKMA) setup a
system to establish rates, however speculators were
taking advantage of this by short selling shares.
п‚— HKMA wound up buying HK$120 billion worth of shares
in various companies to combat this
п‚— Started selling those share in 2001, profiting HK$30
billion
Malaysia
Malaysia
п‚— In July 1997, the Malaysian ringgit jumped overnight
from 8% to over 40%
п‚— Ratings had fallen from investment grade to junk
п‚— Lost 50% of value, from 2.50 to 3.80 to the dollar
п‚— Output of real economy declined
п‚—
п‚—
п‚—
п‚—
Construction dropped 23%
Manufacturing 9%
Agriculture 5.9%
GDP 6.2%
Malaysia
п‚— IMF aid was refused
п‚— Various task forces were formed to fix economy
п‚— By 2005 had a surplus of US$14.04 billion
Singapore
Singapore
п‚— Singapore dipped into a short recession
п‚— Government kept very active management to ensure
security
п‚— Government programs were put forward
п‚— Made no attempt to help capital markets, instead
allowed a 60% drop, however within a year fully
recovered and continued to grow
Less Affected Countries
п‚— 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%)
п‚— 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
Conclusion
п‚— Many businesses collapsed and millions of people fell
below the poverty line
п‚— Indonesia, South Korea, and Thailand were most
affected
п‚— Heavy U.S. investment shifted from Thailand to Europe
п‚— Many countries pushed for corporate governing to
avoid problems later
п‚— Investors were reluctant to lend to developing countries
References
п‚— Kaufman, GG., Krueger, TH., Hunter, WC. (1999) The
Asian Financial Crisis: Origins, Implications and
Solutions. Springer.
п‚— Weisbrot, Mark (August 2007). Ten Years After: The
Lasting Impact of the Asian Financial Crisis
п‚— http://en.wikipedia.org/wiki/1997_Asian_Financial_Crisi
s
п‚— Tecson, Marcelo L. (2009), "IMF Must Renounce Its
Weapon of Mass Destruction: High Interest Rates"
Any Questions?
Thank You
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