34761781 South East Asian Crisis

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East AsianFinancial Crisis..

-Lhamu Tsering


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Agenda..


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INTRODUCTION

The term financial crisis is applied broadly to a variety of

situations in which some financial institutions or assets

suddenly lose a large part of their value.

FINANCIAL crises were associated with

Banking panics

Stock market crashes

Recessions

Bubbles, currency crises

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Countries involved..

Thailand

Philippines

Hong Kong

Taiwan Singapore

South Korea

Malaysia

Indonesia

China


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ASEAN Member States Brunei Darussalam Cambodia

Indonesia

Lao PDR

Malaysia

Myanmar

Philippines

Singapore

Thailand

Viet Nam

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BEFOR

ETH

ECRI

SES

From 1985 to 1996, growth rate averaging almost

9% annually- increased pressure on Thailand's

currency, the baht.

From 1985 until July 1977, baht was pegged at 25

us $.

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ASEAN COUNTRI

ES

gripped much of Asian from July 1997, and raised fearsof a worldwide economic meltdown due to financialcontagion

Primary casualty : Thailand, Indonesia, south Korea.

Fairly hurt: Hong Kong, Malaysia, Laos and Philippines

Most Asian countries currencies fall significantly

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CA

USES

F

OR CRIS

IS

Fixed exchange rate system pegged to the USD.

Decline in export particularly electrical goods

Export - Trade and currency account deficit

Crisis 1st emerged in Thailand when as a crisis of loan repayment

Pressure on forex reserves and the value of baht.

Contagion then spread to Philippines, Malaysia and Indonesia

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CONT..

Weakness of macro- economic fundamentals

Over valued exchange rate

Openness of capital account

Decline in the value of the currency

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Whathappened in Thailand

Mid may 97: Thai Baht was hit by massive

speculative attack

Spark: End-June 97, Thai prime minister declared

that he would not devaluate the baht

Thai government failed to defend the baht against

international speculative

Financial crisis hits

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Whathappened in Thailand

Booming Thai economy ground to halt, contacted by

1.9%

Massive lay offs in finance , real state & construction:

unemployment rate all time high

Huge number of worker returning to their villages in the

countryside and 600,000 foreign workers sent back

Stock market dropped 75%, finance one collapsed

Baht reached 56 us$ in Jan 98

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Whathappened in Indonesia

Drastic devaluation of the rupiah: from 2,000 to18000 for 1 us$

Sharp price increase

Wake of widespread rioting: 500 deaths in Jakartaalone

Governor, bank Indonesia was sacked

President Suharto was forced to stop down in may1998 after 30 year in power.

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Devaluation of currencies

MalaysiaIndonesia


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Whathappened in S. Korea

Drastic devaluation of the won: from 1,000 to 1,700

for1 us$

Credit rating of the country (Moodys): A1 to B2

National debt to GDP ratio more than doubled

Major setback in automobile industry

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Whathappened in Philippines

Growth dropped to virtually in 1998

Peso fall significantly, from 26/us$ to even 55/us$

President Joseph Estrada was forced to resign

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Whathappened in Japan

40% of Japans export go to Asia, so it was affected

even if the economy was strong

Japanese Yen fall to 147 as mass selling began

GDP real growth rate slowed from 5% to 1.6%

Some companies went bankrupt

Being worlds largest currency holder, Japan could

bounce back quickly

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Whathappened in US

Markets did not collapse, but were severely hit

NYSE briefly suspended trading, for the first time Dow Jones industrial average suffered as 3rd biggest

point losses ever

Relationship with JAPAN changed forever: us

stopped supporting the highly artificial trade

environment and exchange rate.

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Whathappened in India

The effect on the Asian crisis was felt in India.

In January 1998, tare he rupee crossed the psychological level of Rs.40 per dollar.

On the international trade front, the effect of the crisis depends upon two factors:-

First:-

The trade between Indian and south East Asian countries

Second:-

The export from the country for which the south East Asian countries competitors.

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Devaluation of currencies

PhilippinesThailand


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IMPACT OFTHECRISIS

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PROPOSEDSOLUTIONS

Stabilizing the exchange rate & debt management

Dealing with the social impact

Strengthening the financial sector

Adjustment if industrial structure

International financial market

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Role of IMF

Provides $120 billion as bailout package

Imposed restrictive condition

Keep interest rate high

Restrictive bank loans

Severe liquidity problem

More bankruptcies

Local called the financial crisis the IMF crisis

due to its controversial role

The wall street treasury IMF complex

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New development for long term

investment

The progressive openness of ASEAN economics

Sound financial measures The growing integration of the ASEAN economy

The expansion and diversification of ASEAN

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Real Growth Rate of GDP


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Currency Exchange rate (per US$1) Change

June1997 July1998

Thai Baht 24.5 41 -40.2%

Indonesian Rupiah 2380 14150 -83.2%

Philippine Peso 26.3 42 -37.4%

South KoreanWon 850 1290 -34.1%


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Country GNP(US$1billion) Change

June 1997 July1998

Thailand 170 102 -40%

Indonesia 205 34 -83.4%

Philippines 75 47 -37.3%

Malaysia 90 55 -38.9%

South Korea 430 283 -34.2%


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After the Shock.. Ties of some currencies to the dollar had to be abandoned resolving

floating rate systems

Supervisory process reforms

Need for accumulation of high levels of international reserves

Evidence that excessive capital inflows to a country to take advantage

of high rates can cause unwise investment decisions

East Asian CA/GDP annual averages, percent of GDP)

Country 1990-1997 1998-2000 2001-2004

China 1.5 2.4 2.5

Hong Kong 0.6 4.1 8.7Indonesia -2.5 4.6 3.9

Malaysia -5.6 12.8 10.3

South Korea -1.6 6.5 1.9

Taiwan 4 2.3 8.1

Thailand -6.3 10.2 5.1


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Thank you

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34761781 South East Asian Crisis