Post on 10-Apr-2018
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East AsianFinancial Crisis..
-Lhamu Tsering
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Agenda..
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INTRODUCTION
The term financial crisis is applied broadly to a variety of
situations in which some financial institutions or assets
suddenly lose a large part of their value.
FINANCIAL crises were associated with
Banking panics
Stock market crashes
Recessions
Bubbles, currency crises
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Countries involved..
Thailand
Philippines
Hong Kong
Taiwan Singapore
South Korea
Malaysia
Indonesia
China
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ASEAN Member States Brunei Darussalam Cambodia
Indonesia
Lao PDR
Malaysia
Myanmar
Philippines
Singapore
Thailand
Viet Nam
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BEFOR
ETH
ECRI
SES
From 1985 to 1996, growth rate averaging almost
9% annually- increased pressure on Thailand's
currency, the baht.
From 1985 until July 1977, baht was pegged at 25
us $.
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ASEAN COUNTRI
ES
gripped much of Asian from July 1997, and raised fearsof a worldwide economic meltdown due to financialcontagion
Primary casualty : Thailand, Indonesia, south Korea.
Fairly hurt: Hong Kong, Malaysia, Laos and Philippines
Most Asian countries currencies fall significantly
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CA
USES
F
OR CRIS
IS
Fixed exchange rate system pegged to the USD.
Decline in export particularly electrical goods
Export - Trade and currency account deficit
Crisis 1st emerged in Thailand when as a crisis of loan repayment
Pressure on forex reserves and the value of baht.
Contagion then spread to Philippines, Malaysia and Indonesia
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CONT..
Weakness of macro- economic fundamentals
Over valued exchange rate
Openness of capital account
Decline in the value of the currency
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Whathappened in Thailand
Mid may 97: Thai Baht was hit by massive
speculative attack
Spark: End-June 97, Thai prime minister declared
that he would not devaluate the baht
Thai government failed to defend the baht against
international speculative
Financial crisis hits
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Whathappened in Thailand
Booming Thai economy ground to halt, contacted by
1.9%
Massive lay offs in finance , real state & construction:
unemployment rate all time high
Huge number of worker returning to their villages in the
countryside and 600,000 foreign workers sent back
Stock market dropped 75%, finance one collapsed
Baht reached 56 us$ in Jan 98
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Whathappened in Indonesia
Drastic devaluation of the rupiah: from 2,000 to18000 for 1 us$
Sharp price increase
Wake of widespread rioting: 500 deaths in Jakartaalone
Governor, bank Indonesia was sacked
President Suharto was forced to stop down in may1998 after 30 year in power.
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Devaluation of currencies
MalaysiaIndonesia
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Whathappened in S. Korea
Drastic devaluation of the won: from 1,000 to 1,700
for1 us$
Credit rating of the country (Moodys): A1 to B2
National debt to GDP ratio more than doubled
Major setback in automobile industry
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Whathappened in Philippines
Growth dropped to virtually in 1998
Peso fall significantly, from 26/us$ to even 55/us$
President Joseph Estrada was forced to resign
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Whathappened in Japan
40% of Japans export go to Asia, so it was affected
even if the economy was strong
Japanese Yen fall to 147 as mass selling began
GDP real growth rate slowed from 5% to 1.6%
Some companies went bankrupt
Being worlds largest currency holder, Japan could
bounce back quickly
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Whathappened in US
Markets did not collapse, but were severely hit
NYSE briefly suspended trading, for the first time Dow Jones industrial average suffered as 3rd biggest
point losses ever
Relationship with JAPAN changed forever: us
stopped supporting the highly artificial trade
environment and exchange rate.
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Whathappened in India
The effect on the Asian crisis was felt in India.
In January 1998, tare he rupee crossed the psychological level of Rs.40 per dollar.
On the international trade front, the effect of the crisis depends upon two factors:-
First:-
The trade between Indian and south East Asian countries
Second:-
The export from the country for which the south East Asian countries competitors.
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Devaluation of currencies
PhilippinesThailand
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IMPACT OFTHECRISIS
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PROPOSEDSOLUTIONS
Stabilizing the exchange rate & debt management
Dealing with the social impact
Strengthening the financial sector
Adjustment if industrial structure
International financial market
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Role of IMF
Provides $120 billion as bailout package
Imposed restrictive condition
Keep interest rate high
Restrictive bank loans
Severe liquidity problem
More bankruptcies
Local called the financial crisis the IMF crisis
due to its controversial role
The wall street treasury IMF complex
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New development for long term
investment
The progressive openness of ASEAN economics
Sound financial measures The growing integration of the ASEAN economy
The expansion and diversification of ASEAN
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Real Growth Rate of GDP
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Currency Exchange rate (per US$1) Change
June1997 July1998
Thai Baht 24.5 41 -40.2%
Indonesian Rupiah 2380 14150 -83.2%
Philippine Peso 26.3 42 -37.4%
South KoreanWon 850 1290 -34.1%
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Country GNP(US$1billion) Change
June 1997 July1998
Thailand 170 102 -40%
Indonesia 205 34 -83.4%
Philippines 75 47 -37.3%
Malaysia 90 55 -38.9%
South Korea 430 283 -34.2%
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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
East Asian CA/GDP annual averages, percent of GDP)
Country 1990-1997 1998-2000 2001-2004
China 1.5 2.4 2.5
Hong Kong 0.6 4.1 8.7Indonesia -2.5 4.6 3.9
Malaysia -5.6 12.8 10.3
South Korea -1.6 6.5 1.9
Taiwan 4 2.3 8.1
Thailand -6.3 10.2 5.1
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Thank you
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