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-Lhamu Tsering. East Asian Financial Crisis. Agenda. East Asia pre crisis Thailand Crisis timeline The dilemma Asian Weaknesses After the shock . Countries involved. Thailand Philippines Hong Kong Taiwan Singapore South Korea Malaysia Indonesia China. Thailand.

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Presentation Transcript
agenda
Agenda..
  • East Asia pre crisis
  • Thailand
  • Crisis timeline
  • The dilemma
  • Asian Weaknesses
  • After the shock
countries involved
Countries involved..
  • Thailand
  • Philippines
  • Hong Kong
  • Taiwan
  • Singapore
  • South Korea
  • Malaysia
  • Indonesia
  • China
thailand
Thailand..
  • May 1997: Thailand spends billions of its foreign reserves to defend the Thai baht against speculative attacks
  • In case of Thailand:
    • Allowing too many short-term capital flows to accumulate with a high degree of currency speculation,
    • Sustaining a fixed exchange rate when it was no longer suitable,
    • Lack of sufficient risk management system at the national level as well as regional level.
    • concerns of large current account deficits
    • weakness in the Thai financial system
    • culminating with the failure of a major finance company, Finance One
  • Speculative attacks brings down investor confidence causing- “capital flight”
  • Crisis in Thailand turned out to be a contagion
crisis timeline
Crisis Timeline..
  • July 1997
    • Thailand is forced to devalue the baht, which drops the value of the baht by as much as 20%-- a record (had actually attempted a 15% controlled devaluation)
    • Malaysia’s central bank intervenes to defend the ringgit.
    • The Philippine peso is devalued. Indonesia widens its trading band for the rupiah in a move to discourage speculators
    • The Singaporedollar starts a gradual decline.
crisis timeline contd
Crisis timeline..Contd/.
  • August1997
    • Thailand agrees to adopt tough economic measures proposed by the IMF in return for a $17 billion loan from the international lender and Asian nations. The Thai government closes 42 ailing finance companies and imposes tax hikes as part of the IMF\'s insistence on austerity
    • Indonesia abandons the rupiah\'s trading band and allows the currency to float freely, triggering a plunge in the currency
crisis timeline contd1
Crisis timeline..Contd/.
  • October1997
    • Indonesia asks the IMF and World Bank for help after the rupiah falls more than 30% in two months, despite interventions by the country\'s central bank to prop up the currency
    • Hong Kong\'s stock index falls 10.4% after it raises bank lending rates to 300% to fend off speculative attacks on the Hong Kong dollar. The plunge on the Hong Kong Stock Exchange wipes $29.3 billion off the value of stock shares.
    • The South Korean won begins to weaken
    • The IMF agrees to a loan package for Indonesia that eventually swells to $40 billion. In return, the government closes 16 financially insolvent banks and promises other wide-ranging reforms
crisis timeline contd2
Crisis timeline..Contd/.
  • November1997
    • Bank of Korea allows the won to fall below 1000 against the dollar (record low)
  • December 1997
    • IMF approves a $57 billion bailout package to the South Korea
    • As part of IMF economic restructuring plan, the Thai government closes 56 insolvent finance companies (30,000 white collar jobs lost)
    • South Korea’s first president elected from country’s opposition party. In days the won hits new low.
    • $3 billion emergency loan released by the world bank , part of a $10 billion support package.
crisis timeline contd3
Crisis timeline..Contd/.
  • January 1998:
    • Release of Indonesia budget plan pulls the rupiah to an all-time low
    • Inflation rises. Prices for basic food staples in Indonesia increase by as much as 80%
    • The rupiah plunges to 12,000 rupiah against the dollar
  • June 1998
    • Japan announces that its economy is in a recession
    • Yen falls to levels near 144 to the dollar. US treaury and Federal reserve intervenes to prop up the yen
  • August 1998
    • Wall Street reacts; the Dow plunges 300 points in its third biggest loss
dilemma
Dilemma..
  • Drop in currencies
    • Raise import prices leading to inflation threat
    • Threat that potentially viable banks and companies may become bankrupt
  • Defend the currency
    • would mean to raise interest rates
    • Threat of economic slump resulting in the failure of banks
asian weaknesses
Asian Weaknesses..
  • Weaknesses that became apparent after the crisis:
    • Productivity: economic expansion before crisis later explained by the rapid growth of production inputs (capital and labor) – but relatively little increase in productivity
    • Banking Regulation: Ineffective government supervision
    • Exchange rate regimes- Mostly pegged exchange rate system
    • Legal Framework: lack of structured legal framework to deal with bankruptcy
after the shock
After the Shock..
  • Ties of some currencies to the dollar had to be abandoned resolving floating rate systems
  • Supervisory process reforms
  • Need for accumulation of high levels of international reserves
  • Evidence that excessive capital inflows to a country to take advantage of high rates can cause unwise investment decisions
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