Asian Currency Crisis

1997

Background

Lucrative economy
Low interest rates
Favorable inflation
Growth of 9.5% on average
Sudden depreciation of currencies

Causes of The Crisis

Debt in foreign currency
No prudent regulations
Firm borrow money on unprecedented
records
Providing heavily in debt firms credit
Funds manager lending to the firms with
notorious credit records
95% of the loans were short term loans

Contd
Lack of Risk management

Lucrative Asian market

Low interest rate
Liquidity expansion
West financial institutions provided irresponsible loans
Close relationships between business man and government
Crony capitalism
Financial intermediaries demand government help
No risk management

Contd
Thai baht collapsed
Speculative attack
Massive selling of a country's currency assets by both
domestic and foreign investors.
Fixed exchange rate are more vulnerable to speculative attack
More foreign reserve are required to keep the fixed exchange
rate

Panic amongst of lenders

Withdrawals of credit

Countries Most Affected

Thailand
South Korea
Indonesia

Thailand
Thailand
Foreign debt and was bankrupt
From 1985 to 1996 economy was growing very fast at
average of 9%
Inflation was very stable at that time
May 1997 Thai baht was attacked by speculative attacks
Government failure to act against that
Stock market drop by 75% percent
Bath devalued by 20% 17th July 1997

South Korea
South Korea

Banking sector was doing poorly because of access debt

Non performing bank loans
Expanding south Korean corporations
E.G KIA motors asked for emergency loan July 1997

Indonesia
Indonesia

Good banking sector

Favorable Inflation
Trade Surplus
Strengthen Indonesia Rupia
Corporations borrowing Dollars
2600 Rupia=1USD
After crisis 11000 Rupia=1USD
13.5% loss of GDP

Macroeconomic affects
Impact on many countries economy
Malaysia
China
Hong Kong
Philippines
Singapore
Unemployment
Political upheaval
ASEAN countries debt rose to 180% at the worst time of
the crisis.