1. By: Phong Van and Sandeep Kumar
Asia Financial Crisis
By: Phong Van and Sandeep Kumar

2. History Before 1997, Asia was attractive “Asian economic miracle”
By developing countries
High interest rates
“Asian economic miracle”
Four Asian Tigers

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 People’s Republic of China India Taiwan
Singapore
Vietnam

6. Introduction Thailand Southeast Asia and Japan 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

12. Thailand

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 it’s 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

16. Indonesia

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 didn’t help
In Sept they hit a all time low, Moody’s rated Indonesia’s long-term debt to “junk bond” status
More effects were felt in Nov when the summer’s 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 wasn’t 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

20. South Korea

21. South Korea
Large corporations were funding big expansions, however failed due to excess debt
Moody’s 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%

22. Hong Kong

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

25. Malaysia

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

28. Singapore

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 it’s foreign investments were in factories rather then securities
U.S. didn’t 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 world’s 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 s
Tecson, Marcelo L. (2009), "IMF Must Renounce Its Weapon of Mass Destruction: High Interest Rates"

33. Any Questions?

34. Thank You