asian economic crisis
DESCRIPTION
A summarized Presentation by students of SP Jain Center of Management (Singapore/ Dubai) on the Asian Economic Crisis of the late 1990`sTRANSCRIPT
By: Saurabh Damani & Vishwesharaya
• BEFORE THE CRISIS• Thailand• Events• CAUSES• Effects of the Crisis on Economies
in the Region• IMF• The Global Impact of the Asian
Crisis• Preventing Future Crises• Placement time :!!!
Tiger economies – Export oriented and Pegged
CurrenciesWorld bank endorses their
spectacular growth storyGrowth rates of 7% in 1970s to 9% in
1990sChinese devalue Yuan by 50%,US
Dollar appreciate 40% against Yen.
Capital Inflows0% export growth in 1996Current Account DeficitsCarry TradeAsset BubbleCurrency speculation-role of hedge
funds.
Thai stock market dropped 75% in 1997By the end of the year, fifty-six Thailand
finance houses are closed down.Led to first ever devaluation of an Asian
Crisis currencyDevaluations vis-à-vis the dollar average
20% to 30% in Thailand, Indonesia, Malaysia and the Philippines
• Seven high-profile bankruptcies of Korean conglomerates, such as Hanbo Steel and Kia Motors
• The Philippines abandons its dollar-peg Overnight interest rates are raised to 32%
• Indonesian authorities close 16 insolvent banks
• Malaysia also abandons its pegged exchange rate
Hong Kong overnight interest rates rise to 280%,
Hang Seng index fall 23% in three days
The largest investment bank in Hong Kong, Peregrine Securities, goes bankrupt
The IMF organises a $58.2 billion rescue for Korea
The IMF puts together a $17.2 billion Thai rescue
Indonesia finalises a deal with the IMF for funding that could total up to $42.3 billion
Poor Regulation of the EconomyOver-Inflated Asset PricesMacroeconomic Policy: Fixed
Exchange Rates
Fall in equity markets, foreign exchange markets and rises in interest rates
Equity Markets
• Interest rates --- Indonesia 300% … Thailand : tightens
monetary policy interest rates peaked at 20%
• Real economy--severe contraction in real economic
activities--increase in corporate bankruptcies--devaluation & exports
Financial Assistance : World bank ,ADB
Fiscal & Monetary policy revisionRestructuring
What did it do wrongly?
• negative ‘wealth effect’ on investors across the world Falls in Equity Markets
• International Trade :brake on the growth of exports from the major economies . 5% of GDP in Japan, 1½% of GDP in Europe and 3% in the US .
• Import side : prices slashed• Foreign Direct Investment : cut back
severely• Economic Growth :constant downward
revision of economic growth forecasts
• universal tax on currency transactions to deter speculation by the markets
• Improve global regulation, which would involve the IMF, the World Bank and other regulators
• Creating a process of active and transparent surveillance of borrowing nations
• Creating a Code of Best Practice on social policy issues, so that financial crises, if they do occur, do not result in disproportionate increases in poverty within developing countries.
• enhancing regional surveillance :ASEAN• the provision of fuller economic and financial
information to the public by governments, financial institutions, and corporations
• Financial contagion• How does financial contagion
occur?• why is it important, and is there
anything that can be done about it?
• What do you think caused the Asian crisis? Do you think the affected countries are now on the right track for recovery?
• Following the Asian crisis I would like to ask you whether there are any ways foreign investors/risk managers are able to predict instances of political instability?
• Are the hedging of currencies and the use of credit derivatives viable options to avoid losses in the event of currency crises?
• Asian crisis v/s subprime : similarities and dissimilarities ?