Download - Group 7F - FIS-Asian Crisis
-
8/8/2019 Group 7F - FIS-Asian Crisis
1/13
SOUTH EAST ASIAN
CURRENCY CRISIS
-
8/8/2019 Group 7F - FIS-Asian Crisis
2/13
Before CrisisEconomies of South East Asia
Maintained high interest rates attractive to foreign investorslooking for a higher rate of return
Economies of South East Asia experienced high growth rates,8-12% GDP, in the late 1980s and early 1990s
Thailand, Indonesia and South Korea had large current accountdeficit
Excessive exposure to foreign currency risk in both thefinancial and corporate sector
In 1990s the U.S Economy recovered from recession
-
8/8/2019 Group 7F - FIS-Asian Crisis
3/13
Before Crisis - Impact
U.S interest rates started increasing to head off inflation
Southeast Asian countries export growth slowed down in
1996, deteriorating their current account position
At the end of 1996, the proportion of loans with maturity of
one year or less was 62% for Indonesia, 68% for South Korea,
50% for the Philippines, 65% for Thailand, 50% for
Philippines, 65% for Thailand and 84% for Taiwan
-
8/8/2019 Group 7F - FIS-Asian Crisis
4/13
South East Asian Currency CrisisCauses of the financial crisis
Unsustainable Current Account Deficits
Over dependence on Short-Term Foreign Funds
Over inflated Asset Prices
Macroeconomic Policy-Fixed Exchange Rates
-
8/8/2019 Group 7F - FIS-Asian Crisis
5/13
CHAIN OF EVENTS
-
8/8/2019 Group 7F - FIS-Asian Crisis
6/13
The largest non-bank financial institution in Thailand becomesbankrupt. By the end of the year, fifty-six such finance houseswere closed down.
Thailand, Philippines, Indonesia and Malaysia abandon theirpegged exchange rate
Corporate failure at South East Asian Countries
Speculative attackat Thai Baht during 1996 and early 1997
Political uncertainty at Korea, Thailand and Philippines
-
8/8/2019 Group 7F - FIS-Asian Crisis
7/13
Events from Macroeconomic point of view
Exchange rates depreciates
Foreign lenders concerned with the repayment of loans,withdrawal funds
Domestic interest rates soar up
Lack of bankruptcy laws and rising Non Performing Loansadded to the stress of the banks
Banks became illiquid
-
8/8/2019 Group 7F - FIS-Asian Crisis
8/13
WHICH COUNTRIESWERE HIT
Hong Kong
-
8/8/2019 Group 7F - FIS-Asian Crisis
9/13
x
Impact
THAILAND
Booming Thailand economy
ground to a halt, contracted by 1.9%. Unemployment rate all-time high
Stock market dropped 75%
Baht reached 56$ in Jan 98
INDONESIA
Drastic devaluation Rupiah-from 2000 to
18000 for 1 US$ Sharp price increases, Excessive Inflation
Governor, Bank of Indonesia was sacked
President Suharto forced to step down
in May 1998 after 30 years in power
SOUTH KOREA
Drastic devaluation of won-from
1000 to 1700 for 1 US$
Credit rating of the country(Moodys)-A1 to B2
National Debt-to-GDP more than
doubled
Major setback in Automobile
industry
JAPAN
40% of Japans exports go to Asia,
so it was effected even if the
economy of Japan was strong Japanese Yen fell to 147
GDP real growth slowed down from
5% to 1.6%
Some companies went bankrupt
-
8/8/2019 Group 7F - FIS-Asian Crisis
10/13
Impact onUS
StockExchange got severely hit
NYSE suspended trading for the first timeever
Dow Jones suffered its 3rd Biggest pointlosses ever
-
8/8/2019 Group 7F - FIS-Asian Crisis
11/13
Role of IMF
Financial Assistance IMF unveiled $112 billion
rescue packages for Indonesia, Malaysia and Thailand
IMF introduced structural adjustment packages
Increase interest rates
Penalize insolvent companies
Reduce government spending to reduce deficits
Fiscal Policy was tightened
Restructuring of the economy
-
8/8/2019 Group 7F - FIS-Asian Crisis
12/13
Learning from the Fiasco
Choosing the right exchange rate regime
Central Importance ofBanking
StricterRegulations
Balanced Current Account
Timely action with respect to monetary and fiscal
policy
-
8/8/2019 Group 7F - FIS-Asian Crisis
13/13
Anant Shroff, Arjit Pandey, Jaydeep Kavadi, Rakshit Goyal
Group 7F