1997-98 Asian Financial Crisis

8/7/2019 1997-98 Asian Financial Crisis

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19971997--9898

Asian Financial CrisisAsian Financial Crisis


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Introduction

It gripped much

of Asia

beginning in

July 1997, andraised fears of a

worldwide

economic

meltdown due to

financialcontagion.


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How did it start?

The crisis started in Thailandwith the financialcollapse of the Thai bahtcaused by the decision ofthe Thai government tofloatthe baht.

At the time, Thailand had acquired a burden offoreign debtthat made the country effectivelybankrupteven before the collapse of its currency.

As the crisis spread, most ofSoutheast Asia andJapan saw slumping currencies, devalued stockmarkets and other asset prices.


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Causes Foreign debt-to-GDP ratios rose from 100% to 167% in

the four large ASEAN economies in 1993-96.

Countries like Thailand, Indonesia, South Korea had largecurrent account deficits. Financed by hot money flows (oncapital account). Hot money flows were accumulated

because of higher interest rates in the East.

In the late 1990s, the US increased interest rates to reduceinflationary pressures. Higher interest rates in the US,made the East less attractive as a place to move hot money

flows. As hot money flows into the east dried up,currencies started to fall and governments struggled tokeep exchange rates at their fixed level against the USDollar.


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Causes

Thailand was the first to have to float the Thai

Baht, this caused a rapid devaluation, which

triggered a loss of confidence throughout the

Asian economies. Soon, other countries wereforced to devalue as investors wanted to get out

of Asian currencies.

The devaluation caused debt to be even moredifficult to repay and countries started to default.


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CurrencyCurrency

June 1997June 1997 July 1998July 1998

ChangeChange

Thai baht 24.5 41 40.2%

Indonesian

rupiah

2,380 14,150 83.2%

Philippine peso 26.3 42 37.4%

South Korean

won

850 1,290 34.1%

Malaysian

ringgit

2.5 4.1 39.0%

Exchange rate per US$Exchange rate per US$


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Role of IMF

Economic monitoring and advice.

Technical assistance and training.

Resources.

Sharing of knowledge.


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CurrencyCurrency

July 1998July 1998 July 2010July 2010

ChangeChange

Thai baht 41 48.056100 17.21%

Indonesian

rupiah

14,150 13,472.500000 -4.787%

Philippine peso 42 46.48037 10.667%

South Korean

won

1,290 1228.67 -4.75%

Malaysian

ringgit

4.1 4.879830 19.02%

Exchange rate per US$Exchange rate per US$


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Lessons from Asian Crisis

While tough measures are needed to

address deep economic problems, the

conditions accompanying its programs

need to be more focused on the problems at

hand, and it needs to be more conscious of

thesocial impactof those programs.


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The future for Asiaand the IMF

Last year the IMFs Asia and Pacific Department

established a regional advisory group made up of

renowned economic experts from Asia.

This group provides the Fund with advice on its

policies impacting the region.

Another part of that engagement involves

increasing the IMFs presence in the region.

Documents

1997-98 Asian Financial Crisis