Asian Crisis

@mir Rashid
 Introduction
• July 1997.
• Financial contagion
– Refers to the transmission of a financial shock in one entity to other
interdependent entities.
• Started from Thailand
– Burden of huge debt which makes country bankrupt.
– Currency Devaluation
• Countries Most Effected (Asian Tigers)
– Indonesia, South Korea and Thailand
– Hong Kong, Malaysia, Philippines

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 Prior to Crisis
• Attractive Countries
– High interest rate
– Assets price high
– Foreign Investment
– GDP 8-12% in 1980-1990
• Crony Capitalism
– Four Asian Tigers Relationship

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 In 1996, Record Capital Inflow of $93 Billion
into Asian 5
• Abrupt Happenings
– Currency Devaluation
– Stock Market Collapses
– Spill over effect from Thailand to Asian Countries
– Over investment in Fixed Assets

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 US Recovery after Recession
• In 1990s
– Asian Tigers required borrowings
• US Economy Recovery
– Interest rate increases in US
– Control Inflation
– High Short Term Interest Rates
– Attract Foreign Investment
Asian Currencies pegged to US dollar makes the
goods expensive till 1996.
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 Asian Miracle to Melt Down
• Begin on Feb 5th 1997
• Fall of Thai Property
• July 2nd 1997, Thai Govt. Float its Currency
• Depreciation of Currencies
– Indonesia 75%
– Malaysia 40%
– Philippines 40%
– Thailand 50%
“Fall in Stock Market of Hong Kong & Singapore”

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 Cont’d
• Unemployment
• Thousands of Firms Bankrupt
• Common Elements
– Pegged Exchange Rate Regime
– Current Account Deficit
– Loss in Investor Confidence
– Credit Fueled Investment Boom

@mir Rashid
@mir Rashid