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Asian Economic Crisis-1997-Economics

The 1997 Asian Economic Crisis began in Thailand in the summer of 1997 and spread to other Southeast Asian countries and regions. It was triggered by currency depreciation and affected emerging markets. The crisis was caused by short term capital flows, unstable financial systems, and fixed exchange rates. Countries faced currency devaluations, high interest rates, and recessions. The IMF provided loans with conditions of fiscal austerity. The crisis slowed global economic growth and trade. Thailand's economy grew rapidly in the 1980s-90s but relied on short term foreign capital and had a currency mismatch, leading to a balance of payments crisis when capital fled in 1997.

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Sudip Kumar Bose
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69 views9 pages

Asian Economic Crisis-1997-Economics

The 1997 Asian Economic Crisis began in Thailand in the summer of 1997 and spread to other Southeast Asian countries and regions. It was triggered by currency depreciation and affected emerging markets. The crisis was caused by short term capital flows, unstable financial systems, and fixed exchange rates. Countries faced currency devaluations, high interest rates, and recessions. The IMF provided loans with conditions of fiscal austerity. The crisis slowed global economic growth and trade. Thailand's economy grew rapidly in the 1980s-90s but relied on short term foreign capital and had a currency mismatch, leading to a balance of payments crisis when capital fled in 1997.

Uploaded by

Sudip Kumar Bose
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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1997

THE ASIAN ECONOMIC CRISIS


ABOUT ASIAN ECONOMIC CRISIS
• Started in the early summer of 1997.
• Was initiated by 2 rounds of currency depreciation.
• Affected the following countries: Thailand, Malaysia,
Philippines, Indonesia, Taiwan, South Korea, Singapore and
Hong Kong.
• 4 basic reasons for the economic crisis to occur:
• Shortage of foreign currencies
• Inadequately developed financial sectors
• Effect of crisis on USA and other parts of the world
• Role of International Monetary Fund (IMF)
FACTORS BEHIND ASIAN ECONOMIC CRISIS

• Underlying causes of Asian Economic Crisis


• Unsustainable current account deficits
• Over dependence on short term foreign funds
• Poor regulation of the economy
• Over inflated asset prices
• Macro-economic Policy: Fixed Exchange rates
• Initial triggers of the events in South East Asia
• Changed sentiment amongst investors in South East Asia
• Speculation by participants in the currency markets.
• Contagion
EFFECTS OF ASIAN ECONOMIC CRISIS

• Equity markets
• Competitive currency devaluations
• Interest rates
• The real economy
THE ROLE OF IMF AND ITS HANDLING

• Financial assistance
• The austerity programme
• Fiscal policy
• Monetary Policy
• Restructuring
• Criticisms
GLOBAL IMPACT OF ASIAN ECONOMIC CRISIS

• The wealth effect: Falls in equity market


• International Trade
• Foreign direct investment
• Economic growth
ASIAN ECONOMIC
CRISIS, 1997 IN
THAILAND
GLIMPSE OF THAILAND ON AEC

• From 1985-1996, Thai economy had an impressive growth rate of 9% and


current account deficit barely exceeded 5%.
• Referred to as “Bubble Economy”.
• At the same time, massive capital inflows were accumulated progressively
along with a high interest rate differential and under fixed exchange rate
regime, including a higher degree od deregulation.
• But the favorable time didn’t last long.
• Foreign funds were poured into the country to take the advantage of high
interest rate differential and to gain from Baht depreciation.
• Circumstances worsened through short term borrowing abroad, primarily
to finance the long term projects, leading to currency mismatches.
• As a result, balance sheet crisis occurred due to sudden capital outflows.
• Foreign short term liabilities had exceeded international reserves in 1996.
• As soon as the Baht was floated, foreign debt in local currency overshot.
WEAKNESSES IN THAILAND ECONOMY

• Sustaining a fixed exchange rate when it was no longer suitable,


• Allowing too many short-term capital flows to accumulate with a
high degree of currency speculation,
• Lacking a sufficient risk management system at the national level as
well as regional level.

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