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Prasad Ugale

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.

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Asia Financial Crisis By: Prasad ugale & Ravindra
History Before 1997, Asia was attractive B
Introduction July 1997 Countries most affected by the Asian Financial Crisis.
Introduction Most affected: Indonesia South Korea Thailand Hong Kong Malaysia Lao Philippines
Introduction Least affected Peoples Republic of China India Taiwan Singapore Vietnam
Introduction Thailand Thai baht Real estate Burden of foreign debt Southeast Asia and Japan Slumping currencies Devalued stock market Steep rise in private debt.
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
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.
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.
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.
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
Thailand
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
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 its value Thai stock market dropped 75%
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
Indonesia
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%
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 didnt help In Sept they hit a all time low, Moodys rated Indonesias long-term debt to junk bond status More effects were felt in Nov when the summers hits were felt in the corporate books
Indonesia In Feb, the President got rid of the governor of the Bank of Indonesia, but this wasnt 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
South Korea
South Korea Large corporations were funding big expansions, however failed due to excess debt Moodys 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%
Hong Kong
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
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
Malaysia
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%
Malaysia IMF aid was refused Various task forces were formed to fix economy By 2005 had a surplus of US$14.04 billion
Singapore
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
Less Affected Countries China, The US, and Japan were very strong economies and were able to survive China held most of its foreign investments were in factories rather then securities U.S. didnt 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 worlds largest holder of currency reserves so it bounced back quickly
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
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"
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  • 1. Asia Financial Crisis By: Prasad ugale & Ravindra
  • 2. History Before 1997, Asia was attractive B
  • 3. Introduction July 1997 Countries most affected by the Asian Financial Crisis.
  • 4. Introduction Most affected: Indonesia South Korea Thailand Hong Kong Malaysia Lao Philippines
  • 5. Introduction Least affected Peoples Republic of China India Taiwan Singapore Vietnam
  • 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 its 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 didnt help In Sept they hit a all time low, Moodys rated Indonesias long-term debt to junk bond status More effects were felt in Nov when the summers 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 wasnt 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 Moodys 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 its foreign investments were in factories rather then securities U.S. didnt 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 worlds 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"