1997 Asian Financial Crisis - Wikipedia, The Free Encyclopedia

7/29/2019 1997 Asian Financial Crisis - Wikipedia, The Free Encyclopedia

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step down on 21 May 1998 in the wake of widespread rioting that followed sharp price

increases caused by a drastic devaluation of the rupiah. The effects of the crisis lingered

through 1998. In 1998 the Philippines growth dropped to virtually zero. Only Singapore

and Taiwan proved relatively insulated from the shock, but both suffered serious hits in

passing, the former more so due to its size and geographical location between Malaysia

and Indonesia. By 1999, however, analysts saw signs that the economies of Asia were

beginning to recover.[3]

Contents

1 History

2 IMF role

2.1 IMF and high interest rates3 Thailand

4 Indonesia

5 South Korea

6 Philippines

7 Malaysia

8 Singapore

9 China

10 United States and Japan

11 Consequences11.1 Asia

11.2 Outside Asia

12 See also

13 References

14 External links

Histor

Until 1997, Asia attracted almost half of the total capital inflow into developing countries.

The economies of Southeast Asia in particular maintained high interest rates attractive to

foreign investors looking for a high rate of return. As a result the region's economies

received a large inflow of money and experienced a dramatic run-up in asset prices. At the

same time, the regional economies of Thailand, Malaysia, Indonesia, Singapore, and South

Korea experienced high growth rates, 812% GDP, in the late 1980s and early 1990s. This

achievement was widely acclaimed by financial institutions including the IMF and World

Bank, and was known as part of the "Asian economic miracle".


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In 1994, noted economist Paul Krugman published an article attacking the idea of an

"Asian economic miracle".[4] He argued that East Asia's economic growth had historically

been the result of increasing capital investment. However, total factor productivity had

increased only marginally or not at all. Krugman argued that only growth in total factor

productivity, and not capital investment, could lead to long-term prosperity. Krugman's

views would be seen by many as prescient after the financial crisis had become apparent,

though he himself stated that he had not predicted the crisis nor foreseen its depth. [5]

The causes of the debacle are many and disputed. Thailand's economy developed into a

bubble fueled by "hot money". More and more was required as the size of the bubble

grew. The same type of situation happened in Malaysia, and Indonesia, which had the

added complication of what was called "crony capitalism".[6] The short-term capital flow

was expensive and often highly conditioned for quick profit. Development money went in

a largely uncontrolled manner to certain people only, not particularly the best suited or

most efficient, but those closest to the centers of power.[7] Another major factor was that

these countries became excessively dependent upon exports for their economy. Indonesia,

Philippines and Thailand had seen their exports to GDP ratio grow from average 35% in

1996 to over 55% in 1998. Such huge dependence upon trade made these countries

susceptible to currency movements. At the time of the mid-1990s, Thailand, Indonesia and

South Korea had large private current account deficits and the maintenance of fixed

exchange rates encouraged external borrowing and led to excessive exposure to foreign

exchange risk in both the financial and corporate sectors. In the mid-1990s, two factors

began to change their economic environment. As the U.S. economy recovered from a

recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began

to raise U.S. interest rates to head off inflation. This made the U.S. a more attractive

investment destination relative to Southeast Asia, which had been attracting hot money

flows through high short-term interest rates, and raised the value of the U.S. dollar. For the

Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S.

dollar caused their own exports to become more expensive and less competitive in the

global markets. At the same time, Southeast Asia's export growth slowed dramatically in

the spring of 1996, deteriorating their current account position.

Some economists have advanced the growing exports of China as a contributing factor to

ASEAN nations' export growth slowdown, though these economists maintain the main

cause of the crises was excessive real estate speculation.[8] China had begun to compete

effectively with other Asian exporters particularly in the 1990s after the implementation of

a number of export-oriented reforms. Other economists dispute China's impact, noting

that both ASEAN and China experienced simultaneous rapid export growth in the early

1990s.[9]

Many economists believe that the Asian crisis was created not by market psychology or

technology, but by policies that distorted incentives within the lenderborrower


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eaihi. The eig age aiie f cedi ha becae aaiabe geeaed a

high eeaged ecic ciae, ad hed ae ice a aiabe

ee.[10] Thee ae ice eea bega cae, caig idiida ad

caie defa deb bigai. The eig aic ag ede ed a age

ihdaa f cedi f he cii cie, caig a cedi cch ad fhe

bacie. I addii, a feig ie aeed ihda hei e, he

echage ae a fded ih he cecie f he cii cie, igdeeciaie ee hei echage ae. T ee cec ae caig, hee

cie' gee aied deic iee ae eceedig high ee ( he

diiih figh f caia b aig edig e aacie ie) ad ieee i

he echage ae, big a ece deic cec a he fied echage ae

ih feig eee. Neihe f hee ic ee cd be aied f g. Ve

high iee ae, hich ca be eee daagig a ec ha i heah,

eaed fhe hac ecie i a aead fagie ae, hie he cea ba

ee hehagig feig eee, f hich he had fiie a. Whe i becaecea ha he ide f caia feeig hee cie a be ed, he ahiie

ceaed defedig hei fied echage ae ad aed hei cecie fa. The

eig deeciaed ae f he cecie ea ha feig cec-deiaed

iabiiie ge baia i deic cec e, caig e bacie ad

fhe deeeig he cii.

Ohe eci, icdig Jeh Sigi ad Jeffe Sach, hae daed he e

f he ea ec i he cii caed he fiacia ae. The aidi ihhich he cii haeed ha ed Sach ad he cae i a caic ba

ed b a dde i hc. Sach ied ic ea ad cac

fica icie ieeed b he gee he adice f he IMF i he ae f

he cii, hie Fedeic Mihi i he e f aeic ifai i he

fiacia ae ha ed a "hed eai" ag ie ha agified a a i

i he ea ec. The cii ha h aaced iee f behaia eci

ieeed i ae chg. Ahe ibe cae f he dde i hc a

a be aibabe he hade f Hg Kg eeig 1 J 1997. Dig he1990, h e fe i he Shea Aia egi b ie ee fe iga f

he aca fdaea i fie f he eecie ecie. The ceai

egadig he fe f Hg Kg ed ie hi ee fhe aa f Aia,

eacebaig ecic cdii i he aea (bee eadig he deeciai f

he Thai bah 2 J 1997).[11]

The feig iie f he 10 ASEAN cie beieed ha he e c-diaed

aiai f hei cecie a a deibeae ae deabiie he ASEANecie. Fe Maaia Pie Miie Mahahi Mhaad acced Gege S

f iig Maaia' ec ih "aie cec ecai." (S cai

hae bee a be f he iggi dig i fa, haig d i h i 1997.) Mahahi'


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private interest. Insolvent institutions had to be closed, and insolvency itself had to be

clearly defined. In short, exactly the same kinds of financial institutions found in the United

States and Europe had to be created in Asia, as a condition for IMF support. In addition,

financial systems were to become "transparent", that is, provide the kind of reliable

financial information used in the West to make sound financial decisions.[17]

However, the greatest criticism of the IMF's role in the crisis was targeted towards itsresponse.[18] As country after country fell into crisis, many local businesses and

governments that had taken out loans in US dollars, which suddenly became much more

expensive relative to the local currency which formed their earned income, found

themselves unable to pay their creditors. The dynamics of the situation were similar to that

of the Latin American debt crisis. The effects of the SAPs were mixed and their impact

controversial. Critics, however, noted the contractionary nature of these policies, arguing

that in a recession, the traditional Keynesian response was to increase government

spending, prop up major companies, and lower interest rates. The reasoning was that bystimulating the economy and staving off recession, governments could restore confidence

while preventing economic loss. They pointed out that the U.S. government had pursued

expansionary policies, such as lowering interest rates, increasing government spending,

and cutting taxes, when the United States itself entered a recession in 2001, and arguably

the same in the fiscal and monetary policies during the 20082009 Global Financial Crisis.

The reforms were, in most cases, long needed[ciaion needed] and the countries most

involved almost completely restructured their financial frameworks. They sufferedpermanent currency devaluations, massive numbers of bankruptcies, collapses of whole

sectors of once-booming economies, real estate busts, high unemployment, and social

unrest. For most of the countries involved, IMF intervention has been roundly criticized.

The role of the International Monetary Fund was so controversial during the crisis that

many locals called the financial crisis the "IMF crisis".[19] Many commentators in

retrospect criticized the IMF for encouraging the developing economies of Asia down the

path of "fast track capitalism", meaning liberalization of the financial sector (elimination of

restrictions on capital flows), maintenance of high domestic interest rates to attractportfolio investment and bank capital, and pegging of the national currency to the dollar to

reassure foreign investors against currency risk.[18]

IMF and high inee ae

The conventional high-interest-rate economic wisdom is normally employed by monetary

authorities to attain the chain objectives of tightened money supply, discourged currency

speculation, stabilized exchange rate, curbed currency depreciation, and ultimatelycontained inflation.

In the Asian meltdown, highest IMF officials rationalized their prescribed high interest


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rates as follows:

From then IMF First Deputy Managing Director, Stanley Fischer (Stanley Fischer, "The

IMF and the Asian Crisis," Forum Funds Lecture at UCLA, Los Angeles on March 20,

1998):

When their governments "approached the IMF, the reserves of Thailand and South

Korea were perilously low, and the Indonesian Rupiah was excessively depreciated.

Thus, the first order of business was... to restore confidence in the currency. To

achieve this, countries have to make it more attractive to hold domestic currency,

which in turn, requires increasing interest rates temporarily, even if higher interest costs

complicate the situation of weak banks and corporations...

"Why not operate with lower interest rates and a greater devaluation? This is a relevant

tradeoff, but there can be no question that the degree of devaluation in the Asian

countries is excessive, both from the viewpoint of the individual countries, and fromthe viewpoint of the international system. Looking first to the individual country,

companies with substantial foreign currency debts, as so many companies in these

countries have, stood to suffer far more from currency (depreciation) than from a

temporary rise in domestic interest rates. Thus, on macroeconomics monetary

policy has to be kept tight to restore confidence in the currency...."

From the then IMF Managing Director Michel Camdessus ("Doctor Knows Best?"

Asiaweek, 17 July 1998, p. 46):

"To reverse (currency depreciation), countries have to make it more attractive to hold

domestic currency, and that means temporarily raising interest rates, even if this (hurts)

weak banks and corporations."

Thailad

Further information: Econom of Thailand

From 1985 to 1996, Thailand's economy grew at an average of over 9% per year, the

highest economic growth rate of any country at the time. Inflation was kept reasonably low

within a range of 3.45.7%.[20] The baht was pegged at 25 to the US dollar.

On 14 May and 15 May 1997, the Thai baht was hit by massive speculative attacks. On 30

June 1997, Prime Minister Chavalit Yongchaiyudh said that he would not devalue the baht.

This was the spark that ignited the Asian financial crisis as the Thai government failed to

defend the baht, which was pegged to the basket of currencies in which the U.S. dollar

was the main component,[21] against international speculators. Thailand's booming

economy came to a halt amid massive layoffs in finance, real estate, and construction that


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eled in hge nmbe of oke ening o hei illage in he conide and

600,000 foeign oke being en back o hei home conie.[22] The bah dealed

ifl and lo moe han half of i ale. The bah eached i loe poin of 56 ni o

he US dolla in Jana 1998. The Thai ock make dopped 75%. Finance One, he

lage Thai finance compan nil hen, collaped.[23]

The Thai goenmen a eenall foced o floa he Bah, on 2 Jl 1997. On 11Ag 1997, he IMF neiled a ece package fo Thailand ih moe han $17 billion,

bjec o condiion ch a paing la elaing o bankpc (eoganiing and

ecing) pocede and eablihing ong eglaion fameok fo bank and

ohe financial iniion. The IMF appoed on 20 Ag 1997, anohe bailo

package of $3.9 billion.

B 2001, Thailand' econom had ecoeed. The inceaing a eene alloed he

con o balance i bdge and epa i deb o he IMF in 2003, fo ea ahead ofchedle. The Thai bah conined o appeciae o 29 Bah o he Dolla in Ocobe 2010.

Indoneia

See also: Fall of Suharto and Econom of Indonesia

In Jne 1997, Indoneia eemed fa fom cii. Unlike Thailand, Indoneia had lo

inflaion, a ade pl of moe han $900 million, hge foeign echange eee ofmoe han $20 billion, and a good banking eco. B a lage nmbe of Indoneian

copoaion had been booing in U.S. dolla. Ding he peceding ea, a he

piah had enghened epecie o he dolla, hi pacice had oked ell fo hee

copoaion; hei effecie leel of deb and financing co had deceaed a he local

cenc' ale oe.

In Jl 1997, hen Thailand floaed he bah, Indoneia' monea ahoiie idened he

piah ading band fom 8% o 12%. The piah ddenl came nde eee aack inAg. On 14 Ag 1997, he managed floaing echange egime a eplaced b a

fee-floaing echange ae aangemen. The piah dopped fhe. The IMF came

foad ih a ece package of $23 billion, b he piah a inking fhe amid fea

oe copoae deb, maie elling of piah, and ong demand fo dolla. The piah

and he Jakaa Sock Echange oched a hioic lo in Sepembe. Mood' eenall

dongaded Indoneia' long-em deb o 'jnk bond'.[24]

Alhogh he piah cii began in Jl and Ag 1997, i inenified in Noembe henhe effec of ha mme dealaion hoed p on copoae balance hee.

Companie ha had booed in dolla had o face he highe co impoed pon hem

b he piah' decline, and man eaced b bing dolla hogh elling piah,


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undermining the value of the latter further. In February 1998, President Suharto sacked

Bank Indonesia Governor J. Soedradjad Djiwandono, but this proved insufficient. Suharto

resigned under public pressure in May 1998 and Vice President B. J. Habibie was elevated

in his place. Before the crisis, the exchange rate between the rupiah and the dollar was

roughly 2,600 rupiah to 1 USD.[25] The rate plunged to over 11,000 rupiah to 1 USD on 9

January 1998, with spot rates over 14,000 during January 2326 and trading again over

14,000 for about six weeks during JuneJuly 1998. On 31 December 1998, the rate wasalmost exactly 8,000 to 1 USD.[26] Indonesia lost 13.5% of its GDP that year.

Soh Korea

Further information: Econom of South Korea

The banking sector was burdened with non-performing loans as its large corporations

were funding aggressive expansions. During that time, there was a haste to build great

conglomerates to compete on the world stage. Many businesses ultimately failed to ensure

returns and profitability. The South Korean conglomerates, more or less completely

controlled by the government, simply absorbed more and more capital investment.

Eventually, excess debt led to major failures and takeovers. For example, in July 1997,

South Korea's third-largest car maker, Kia Motors, asked for emergency loans. In the

wake of the Asian market downturn, Moody's lowered the credit rating of South Korea

from A1 to A3, on 28 November 1997, and downgraded again to B2 on 11 December.

That contributed to a further decline in South Korean shares since stock markets were

already bearish in November. The Seoul stock exchange fell by 4% on 7 November 1997.

On 8 November, it plunged by 7%, its biggest one-day drop to that date. And on 24

November, stocks fell a further 7.2% on fears that the IMF would demand tough reforms.

In 1998, Hyundai Motors took over Kia Motors. Samsung Motors' $5 billion venture was

dissolved due to the crisis, and eventually Daewoo Motors was sold to the American

company General Motors (GM).

The South Korean won, meanwhile, weakened to more than 1,700 per U.S. dollar fromaround 800. Despite an initial sharp economic slowdown and numerous corporate

bankruptcies, South Korea has managed to triple its per capita GDP in dollar terms since

1997. Indeed, it resumed its role as the world's fastest-growing economysince 1960, per

capita GDP has grown from $80 in nominal terms to more than $21,000 as of 2007.

However, like the chaebol, South Korea's government did not escape unscathed. Its

national debt-to-GDP ratio more than doubled (approximately 13% to 30%) as a result of

the crisis.

In South Korea, the crisis is also commonly referred to as theIMF crisis.


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Philippines

Further information: Econom of the Philippines

The Philippine cenal bank aied inee ae b 1.75 pecenage poin in Ma 1997

and again b 2 poin on 19 Jne. Thailand iggeed he cii on 2 Jl and on 3 Jl, he

Philippine Cenal Bank ineened o defend he peo, aiing he oenigh ae fom 15%o 32% a he one of he Aian cii in mid-Jl 1997. The peo dopped fom 26 peo

pe dolla a he a of he cii o 38 peo in mid-1999 o 54 peo a in eal Ag,

2001.

The Philippine GDP conaced b 0.6% ding he o pa of he cii, b ge b

3% b 2001, depie candal of he adminiaion of Joeph Eada in 2001, mo

noabl he "jeeng" candal, caing he PSE Compoie Inde, he main inde of he

Philippine Sock Echange, o fall o 1000 poin fom a high of 3000 poin in 1997. Thepeo' ale declined o abo 55 peo o he US dolla. Lae ha ea, Eada a on

he ege of impeachmen b hi allie in he enae oed again conining he

poceeding. Thi led o popla poe clminaing in he "EDSA II Reolion", hich

effeced hi eignaion and eleaed Gloia Macapagal-Aoo o he peidenc. Aoo

leened he cii in he con. The Philippine peo oe o abo 50 peo b he

ea' end and aded a aond 41 peo o a dolla in lae 2007. The ock make alo

eached an all ime high in 2007 and he econom a going b moe han 7 pecen, i

highe in neal o decade.

Malasia

Further information: Econom of Malasia

Befoe he cii, Malaia had a lage cen accon defici of 5% of i GDP. A he

ime, Malaia a a popla inemen deinaion, and hi a efleced in KLSE

acii hich a eglal he mo acie ock echange in he old (ih noeeceeding een make ih fa highe capialiaion like he Ne Yok Sock Echange).

Epecaion a he ime ee ha he goh ae old conine, popelling Malaia o

deeloped a b 2020, a goenmen polic aiclaed in Waaan 2020. A he a

of 1997, he KLSE Compoie inde a aboe 1,200, he inggi a ading aboe 2.50

o he dolla, and he oenigh ae a belo 7%.

In Jl 1997, ihin da of he Thai bah dealaion, he Malaian inggi a

"aacked" b peclao. The oenigh ae jmped fom nde 8% o oe 40%. Thiled o aing dongade and a geneal ell off on he ock and cenc make. B end

of 1997, aing had fallen man noche fom inemen gade o jnk, he KLSE had

lo moe han 50% fom aboe 1,200 o nde 600, and he inggi had lo 50% of i


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ale, falling fom aboe 2.50 o nde 4.57 on (Jan 23, 1998) o he dolla. The hen

pemie, Mahahi Mohammad impoed ic capial conol and inodced a 3.80 peg

again he US dolla.

In 1998, he op of he eal econom declined plnging he con ino i fi

eceion fo man ea. The concion eco conaced 23.5%, manfacing

hnk 9% and he agicle eco 5.9%. Oeall, he con' go domeic podcplnged 6.2% in 1998. Ding ha ea, he inggi plnged belo 4.7 and he KLSE fell

belo 270 poin. In Sepembe ha ea, aio defenie meae ee annonced o

oecome he cii. The pincipal meae aken ee o moe he inggi fom a fee floa

o a fied echange ae egime. Bank Negaa fied he inggi a 3.8 o he dolla. Capial

conol ee impoed hile aid offeed fom he IMF a efed. Vaio ak foce

agencie ee fomed. The Copoae Deb Recing Commiee deal ih copoae

loan. Danahaa diconed and bogh bad loan fom bank o faciliae odel ae

ealiaion. Danamodal ecapialied bank.

Goh hen eled a a loe b moe ainable pace. The maie cen accon

defici became a fail banial pl. Bank ee bee capialied and NPL ee

ealied in an odel a. Small bank ee bogh o b ong one. A lage nmbe

of PLC ee nable o eglae hei financial affai and ee delied. Compaed o he

1997 cen accon, b 2005, Malaia a eimaed o hae a US$14.06 billion

pl.[27] Ae ale hoee, hae no ened o hei pe-cii high. In 2005 he

la of he cii meae ee emoed a he inggi a aken off he fied echangeem. B nlike he pe-cii da, i did no appea o be a fee floa, b a managed

floa, like he Singapoe dolla.

Singapoe

Further information: Econom of Singapore

A he financial cii pead he econom of Singapoe dipped ino a ho eceion.The ho daion and milde effec on i econom a cedied o he acie

managemen b he goenmen. Fo eample, he Monea Ahoi of Singapoe

alloed fo a gadal 20% depeciaion of he Singapoe dolla o chion and gide he

econom o a of landing. The iming of goenmen pogam ch a he Ineim

Upgading Pogam and ohe concion elaed pojec ee bogh foad. Inead

of alloing he labo make o ok, he Naional Wage Concil pe-empiel ageed o

Cenal Poiden Fnd c o loe labo co, ih limied impac on dipoable

income and local demand. Unlike in Hong Kong, no aemp a made o dieclineene in he capial make and he Sai Time Inde a alloed o dop 60%. In

le han a ea, he Singapoean econom fll ecoeed and conined on i goh

ajeco.[28]


12/19



China

Further information: Econom of the People's Republic of China

The Chinese currency, the renminbi (RMB), had been pegged to the US dollar at a ratio of

8.3 RMB to the dollar, in 1994. Having largely kept itself above the fray throughout 1997

1998 there was heavy speculation in the Western press that China would soon be forcedto devalue its currency to protect the competitiveness of its exports vis-a-vis those of the

ASEAN nations, whose exports became cheaper relative to China's. However, the RMB's

non-convertibility protected its value from currency speculators, and the decision was

made to maintain the peg of the currency, thereby improving the country's standing within

Asia. The currency peg was partly scrapped in July 2005 rising 2.3% against the dollar,

reflecting pressure from the United States.

Unlike investments of many of the Southeast Asian nations, almost all of China's foreigninvestment took the form of factories on the ground rather than securities, which insulated

the country from rapid capital flight. While China was unaffected by the crisis compared

to Southeast Asia and South Korea, GDP growth slowed sharply in 1998 and 1999, calling

attention to structural problems within its economy. In particular, the Asian financial crisis

convinced the Chinese government of the need to resolve the issues of its enormous

financial weaknesses, such as having too many non-performing loans within its banking

system, and relying heavily on trade with the United States.

Unied Sae and Japan

Further information: Econom of the United States and Econom of Japan

The "Asian flu" had also put pressure on the United States and Japan. Their markets did

not collapse, but they were severely hit. On 27 October 1997, the Dow Jones industrial

plunged 554 points or 7.2%, amid ongoing worries about the Asian economies. The New

York Stock Exchange briefly suspended trading. The crisis led to a drop in consumer andspending confidence (see 27 October 1997 mini-crash). Indirect effects included the dot-

com bubble, and years later the housing bubble and the Subprime mortgage crisis. Japan

was affected because its economy is prominent in the region. Asian countries usually run a

trade deficit with Japan because the latter's economy was more than twice the size of the

rest of Asia together; about 40% of Japan's exports go to Asia. The Japanese yen fell to

147 as mass selling began, but Japan was the world's largest holder of currency reserves at

the time, so it was easily defended, and quickly bounced back. GDP real growth rate

slowed dramatically in 1997, from 5% to 1.6% and even sank into recession in 1998, dueto intense competition from cheapened rivals. The Asian financial crisis also led to more

bankruptcies in Japan. In addition, with South Korea's devalued currency, and China's

steady gains, many companies complained outright that they could not compete.[29]


13/19



Another longer-term result was the changing relationship between the U.S. and Japan, with

the U.S. no longer openly supporting the highly artificial trade environment and exchange

rates that governed economic relations between the two countries for almost five decades

after World War II.[30]

ConsequencesAsia

The crisis had significant macroeconomic-level effects, including sharp reductions in

values of currencies, stock markets, and other asset prices of several Asian countries.[31]

The nominal U.S. dollar GDP of ASEAN fell by US$9.2 billion in 1997 and $218.2 billion

(31.7%) in 1998. In South Korea, the $170.9 billion fall in 1998 was equal to 33.1% of the

1997 GDP.[32]

Many businesses collapsed, and as a consequence, millions of people fellbelow the poverty line in 19971998. Indonesia, South Korea and Thailand were the

countries most affected by the crisis.

Currenc

Echange

rate

(per US$1)[33] Change

June1997

July1998

Thai baht 24.5 41 40.2%

Indonesianrupiah

2,380 14,150 83.2%

Philippinepeso

26.3 42 37.4%

Malaysianringgit

2.5 4.1 39.0%

SouthKorean won

850 1,290 34.1%

Countr

GNP (US$1

billion)[33]Change

June

1997

July

1998

Thailand170 102 40.0%

Indonesia205 34 83.4%

Philippines 75 47 37.3%

Malaysia 90 55 38.9%South

Korea430 283 34.2%

The above tabulation shows that despite the prompt raising of interest rates to 32% in the

Philippines upon the onset of crisis in mid-July 1997, and to 65% in Indonesia upon the

intensification of crisis in 1998, their local currencies depreciated just the same and did not

perform better than those of South Korea, Thailand, and Malaysia, which countries had

their high interest rates set at generally lower than 20% during the Asian crisis. This created


14/19



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world. The powerful negative shock also sharply reduced the price of oil, which reached a

low of about $11 per barrel towards the end of 1998, causing a financial pinch in OPEC

nations and other oil exporters. This reduction in oil revenue contributed to the 1998

Russian financial crisis, which in turn caused Long-Term Capital Management in the

United States to collapse after losing $4.6 billion in 4 months. A wider collapse in the

financial markets was avoided when Alan Greenspan and the Federal Reserve Bank of

New York organized a $3.625 billion bail-out. Major emerging economies Brazil andArgentina also fell into crisis in the late 1990s (see Argentine debt crisis).[38]

The crisis in general was part of a global backlash against the Washington Consensus and

institutions such as the IMF and World Bank, which simultaneously became unpopular in

developed countries following the rise of the anti-globalization movement in 1999. Four

major rounds of world trade talks since the crisis, in Seattle, Doha, Cancn, and Hong

Kong, have failed to produce a significant agreement as developing countries have become

more assertive, and nations are increasingly turning toward regional or bilateral free tradeagreements (FTAs) as an alternative to global institutions. Many nations learned from this,

and quickly built up foreign exchange reserves as a hedge against attacks, including Japan,

China, South Korea. Pan Asian currency swaps were introduced in the event of another

crisis. However, interestingly enough, such nations as Brazil, Russia, and India as well as

most of East Asia began copying the Japanese model of weakening their currencies,

restructuring their economies so as to create a current account surplus to build large

foreign currency reserves. This has led to an ever increasing funding for US treasury

bonds, allowing or aiding housing (in 20012005) and stock asset bubbles (in 19962000)to develop in the United States.

See alo

Liquidity crisisFinancial contagionList of finance topics

Stock disasters in Hong Kong

Refeence

Books

Kaufman, GG., Krueger, TH., Hunter, WC. (1999) The Asian Financial Crisis:Origins, Implications and Solutions. Springer. ISBN 0-7923-8472-5

Pettis, Michael (2001). The Volatilit Machine: Emerging Economies and theThreat of Financial Collapse. Oxford University Press. ISBN 0-19-514330-2.Blustein, Paul (2001). The Chastening: Inside the Crisis that Rocked theGlobal Financial Sstem and Humbled the IMF. PublicAffairs. ISBN 1-


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891620-81-9.

Fengbo Zhang: Opinion on Financial Cii, 6. Defeaing he Wold Financial

Som (hp://ie.google.com/ie/fengbohang3/) China Yoh Pblihing

Hoe (2000)

Noland, Mak, Li-gang Li, Sheman Robinon, and Zhi Wang. (1998)

Global Economic Effec of he Aian Cenc Dealaion. Polic Anale

in Inenaional Economic, no. 56. Wahingon, DC: Inie fo InenaionalEconomic.

Pempel, T. J. (1999) The Poliic of he Aian Economic Cii. Ihaca, NY:

Conell Uniei Pe.

Rie, Philippe. (2000) The Aian Som: Aia' Economic Cii Eamined.

Tecon, Macelo L. (2005)Ple: Economic Sing(The Cae Again IMF,

Cenal Bank, and IMF-Pecibed High Inee Rae) Makai Ci,

Philippine: Raide of he Lo Gold Pblicaion

Mchhala, Bhmika, ed. (2007) Ten Yea Afe: Reiiing he Aian

Financial Cii(hp://.cep.ne/docmen/pblicaion/eneaafe_2007_11.pdf) .

Wahingon, DC: Woodo Wilon Inenaional Cene fo Schola Aia

Pogam.

Io, Takaohi and Ande K. Roe (2006).financial eco deelopmen in he

Pacific Rim. Uniei of Chicago Pe. ISBN 978-0-226-38684-3.

Pape

Ngian Kee Jin (Mach 2000). Coping ih he Aian Financial Cii: The

Singapoe Epeience (hp://.iea.ed.g/82000.pdf) . Inie of

Sohea Aian Sdie. ISSN 0219-3582

Tiai, Rajnih (2003).Po-cii Echange Rae Regime in Sohea Aia

(hp://.global-innoaion.ne/eam/iai/PDF/echange-ae.pdf) , Semina

Pape, Uniei of Hambg.

Kilgo, Andea (1999). The changing economic iaion in Vienam: A

podc of he Aian cii? (hp://.geog.ni-

goeingen.de/k/apa/pn/pn12/ienam.hml)S. Radele, J.D. Sach, R.N. Coope, B.P. Booh (1998). The Ea Aian

Financial Cii: Diagnoi, Remedie, Popec

(hp://.jo.og/ie/00072303/di009478/00p0029/0/) . Booking Pape

on Economic Acii.

Sigli, Joeph (1996). Some Leon Fom The Ea Aian Miacle

(hp://bo.ofodjonal.og/conen/11/2/151.ho) . The Wold Bank

Reeach Obee.

Weibo, Mak (Ag 2007). Ten Yea Afe: The Laing Impac of he

Aian Financial Cii

(hp://.cep.ne/docmen/pblicaion/aia_cii_2007_08.pdf) . Cene

fo Economic and Polic Reeach.


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Tecson, Marcelo L. (2009), "IMF Must Renounce Its Weapon of Mass

Destruction: High Interest Rates"(4-part paper on high-interest-rate fallacies

and alternatives, emailed to IMF and others on 27 January 2009)

Other

Is Thailand on the road to recovery

(http://photojourn.wordpress.com/1999/03/01/) , article by Australian photo-

journalist John Le Fevre that looks at the effects of the Asian Economic Crisis

on Thailand's construction industry

Women bear brunt of crisis (http://photojourn.wordpress.com/category/1999-

posts/) , article by Australian photo-journalist John Le Fevre examining the

effects of the Asian Economic Crisis on Asia's female workforce

The Crash (http://www.pbs.org/wgbh/pages/frontline/shows/crash/) (transcript

only), from the PBS series Frontline

Specific

1. Kaufman: pp. 1956

2. http://www.adb.org/Documents/Books/Key_Indicators/2003/pdf/rt29.pdf

3. Pempel: pp 118143

4. Krugman, Paul (1994). "The Myth of Asia's Miracle".Foreign Affairs73 (6): 6278.

JSTOR 20046929 (http://www.jstor.org/stable/20046929) .

5. The Myth of Asia's Miracle (http://web.mit.edu/krugman/www/myth.html) A Cautionary

Fable by Paul Krugman.

6. Hughes, Helen. Crony Capitalism and the East Asian Currency Financial 'Crises'

(http://www.cis.org.au/POLICY/Spr99/polspr99-1.htm) .Polic. Spring 1999.

7. Blustein: p. 73

8. The Three Routes to Financial Crises: The Need for Capital Controls

(http://www.newschool.edu/cepa/publications/workingpapers/archive/cepa0318.pdf) .

Gabriel Palma (Cambridge University). Center for Economic Policy Analysis. November

2000.

9. Bernard Eccleston, Michael Dawson, Deborah J. McNamara (1998). The Asia-Pacific

Profile (http://books.google.com/books?visbn=0415172799&id=l07ak-yd6DAC&pg=RA1-PA311&lpg=RA1-

PA311&ots=XgqmmGV3CC&dq=%22Bangkok+Declaration%22+ASEAN&ie=ISO-8859-

1&output=html&sig=u2ddDhzn-yVhEn5Fwu3d8iih0OA) . Routledge (UK). ISBN 0-415-

17279-9. http://books.google.com/books?visbn=0415172799&id=l07ak-

yd6DAC&pg=RA1-PA311&lpg=RA1-

PA311&ots=XgqmmGV3CC&dq=%22Bangkok+Declaration%22+ASEAN&ie=ISO-8859-

1&output=html&sig=u2ddDhzn-yVhEn5Fwu3d8iih0OA.

10. FIRE-SALE FDI (http://web.mit.edu/krugman/www/FIRESALE.htm) by Paul Krugman.

11. Stiglitz: pp. 121612. "Mahathir's dark side" (http://www.telegraph.co.uk/comment/telegraph-

view/3597972/Mahathirs-dark-side.html) . The Dail Telegraph (London). 24 October

2003. http://www.telegraph.co.uk/comment/telegraph-view/3597972/Mahathirs-dark-

side.html.


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13. http://www.abc.net.au/news/newsitems/200612/s1812946.htm

14. Joint Comminuque The 30th ASEAN Ministerial Meeting (AMM)

(http://www.asean.org/4010.htm) The Thirtieth ASEAN Ministerial Meeting was held in

Subang Jaya, Malaysia from 24 to 25 July 1997.

15. Halloran, Richard. China's Decisive Role in the Asian Financial Crisis

(http://www.bu.edu/globalbeat/pubs/ib24.html) . Global Beat Issue Brief No. 24. 27 January

1998.

16. Woo-Cumings, Meredith (July 2003), "South Korean Anti-Americanism"(http://www.jpri.org/publications/workingpapers/wp93.html) , Woking Pape No. 93

(Japan Policy Research Institute),

http://www.jpri.org/publications/workingpapers/wp93.html Korea:"[T]he ceiling on foreign

ownership of publicly traded companies was raised to 50 percent from 26 percent; and the

ceiling on individual foreign ownership went up from 7 percent to 50 percent."

17. Noland: pp. 98103

18. ^ IMF's Role in the Asian Financial Crisis (http://www.ifg.org/imf_asia.html) by Walden

Bello.

19.

The IMF Crisis (http://www.imfsite.org/recentfin/crisis.html) Editorial. Wall StreetJournal. 15 April 1998.

20. http://www.columbia.edu/cu/thai/html/financial97_98.html

21. Haider A. Khan, Global Markets and Financial Crises in Asia, University of Denver 2004

22. Kaufman: pp. 1938

23. Liebhold, David. Thailand's Scapegoat?

(http://www.time.com/time/asia/magazine/99/1227/thailand.finance.html) Battling

extradition over charges of embezzlement, a financier says he's the fall guy for the 1997

financial crash. Time.com. 27 December 1999.

24.

Raghavan, Anita (26 December 1997). "Japan Stocks Slide Again On Fears AboutStability" (http://online.wsj.com/article/SB882840058627490500.html?mod=googlewsj) .

Wall Street Journal. http://online.wsj.com/article/SB882840058627490500.html?

mod=googlewsj. Retrieved 2 September 2009.

25. http://www.oanda.com/convert/fxhistory August 13 = 2673; August 14 = 2790; August 15

= 2900; August 31 = 2930; October 31 = 3640; December 31 = 5535. Accessed 2009-08-

20. Archived (http://www.webcitation.org/5jXUXlzHo) 2009-09-04.

26. http://www.oanda.com/convert/fxhistory January 31 = 10,100; March 31 = 8,650; May 31

= 11,350; July 31 = 13,250; September 30 = 10,800. Accessed 2009-08-20. Archived

(http://www.webcitation.org/5jXUXlzHo) 2009-09-04.

27. The CIA World Factbook - Malaysia (https://www.cia.gov/library/publications/the-world-factbook/print/my.html)

28. Ngian Kee Jin: p. 12

29. Pettis: pp. 5560

30. Pettis: p. 79

31. Tiwari: pp. 13

32. ^ http://www.adb.org/Documents/Books/Key_Indicators/2001/rt11_ki2001.xls

33. ^ Cheetham, R. 1998. Asia Crisis. Paper presented at conference, U.S.-ASEAN-Japan

policy Dialogue. School of Advanced International Studies of Johns Hopkins University,

June 79, Washington, D.C.34. Radelet: pp. 56

35. The Asian financial crisis ten years later: assessing the past and looking to the future

(http://ideas.repec.org/a/fip/fedfsp/y2007ifeb6.html) . Janet L. Yellen. Speech to the Asia


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/27/12 1997 Asian financial crisis - Wikipedia, the free encclopedia, , ,

36. ^ Kilgour, Andrea (1999). The changing economic situation in Vietnam: A product of the

Asian crisis?

37. ^ Weisbrot: p. 6

38. ^The Cah transcript. PBS Frontline.

Eternal links

Impact on Indonesia (http://cdm164001.cdmhost.com/krogh/item_viewer.php?

CISOROOT=/p164001coll21&CISOPTR=255&CISOBOX=1&REC=2) from

the Dean Peter Krogh Foreign Affairs Digital Archives

(http://cdm164001.cdmhost.com/krogh/)

Congressional Research Service report for US Congress

(http://www.fas.org/man/crs/crs-asia2.htm)

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