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Financial Institutions and Markets 5th April, 2016

The Asian Crisis

The Asian financial crisis, also called the “Asian Contagion, !as a period of financial

crisis "arked #$ de%aluation of "an$ &ast Asian currencies in the #eginning in 'ul$ 1(()* This

raised fears of a !orld!ide econo"ic "eltdo!n due the "assi%e depreciation of the Asian

currencies* A"ong the "ost affected countries !ere Indonesia, +outh orea, Thailand, -ong

ong, Mala$sia and the .hilippines*

The crisis started in Thailand as the result of the go%ern"ent/s decision to no longer peg

the local currenc$ to the *+* dollar* There !as a "assi%e de%aluation of the Thai #aht due to

se%ere o%eretension !hich !as partl$ real estate dri%en* The go%ern"ent spent all of its foreign

reser%es to defend the peg #ut finall$ had to settle to float the #aht* At the ti"e, Thailand had

acuired a #urden of foreign de#t that "ade the countr$ effecti%e #ankrupt e%en #efore the

collapse of its currenc$* This crisis sparked achain of e%ents causing neigh#oring Asian

econo"ies to slu"p contri#uting to "arket decline in the *+*, &urope and 3ussia*

As the crisis spread, "ost of +outheast Asian and 'apan sa! slu"ping currencies,

de%alued stock "arket and a uick rise in pri%ate de#t* 4hat "ade it !orst !as the fact that

foreign de#tto7. ratios rose fro" 1008 to 16)8 in four large A+&A9 econo"ies in 1((:(6

and shot up #e$ond 1;08 during the peak of the crisis* Although "ost the go%ern"ents of Asia

had a sound fiscal polic$, the IMF stepped in to initiate a ero*

3achana +hrestha

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Financial Institutions and Markets 5th April, 2016

7uring the Asian crisis, !hen it #eca"e clear that the underl$ing root !as !eakness in

the financial s$ste"s and not the t$pical high fiscal deficits that characteri>ed the 1(;0s crises in

?atin A"erica and the .hilippines, the go%ern"ents of Indonesia, orea, and Mala$sia

i""ediatel$ esta#lished centrali>ed AMCs to help in the disposal, collection, and restructuring

of nonperfor"ing loans* Indonesia esta#lished the Indonesia @ank 3estructuring Agenc$I@3AB

Mala$sia, 7anaharta and orea, the orea Asset Manage"ent Co"pan$ AMCDB* Thailand,

 #ecause of concern o%er its fiscal situation, at first did not institute a centrali>ed AMC, #ut rather 

left "uch of restructuring on #anks the"sel%es* It did, ho!e%er, esta#lish a rapid disposal

agenc$, the Finance 3estructuring Agenc$ to address the pro#le"s of finance co"panies* Three

$ears after Indonesia, Mala$sia, and orea esta#lished their centrali>ed AMCs, Thailand

like!ise esta#lished the Thai Asset Manage"ent Co"pan$ TAMCB in 2001*

The AMCs !ere tasked !ith relie%ing the #anking sector of 9.?s #$ car%ing out the #ad

loans* This !as to #e done #$ purchasing pro#le" loans fro" #anks, repackagingEin%entor$ing

the" until the$ can #e sold usuall$ #$ pu#lic tenderEauction*3elati%e to the other t!o

countries, Mala$sias 7anaharta has pro#a#l$ #een the "ost effecti%e and TAMC has #een the

least effecti%e* ?acking legislati%e #acking, the Thai AMC !as left to negotiate !ith #anks on

%oluntar$ ter"s, there#$ "aking it "uch less successful* As such, inclusi%e of assets still held #$

TAMC, the 9.? ratio for Thailand is 1;8* For orea and Mala$sia !hen assets held #$ their

AMCs are included, 9.? ratio is ;8 and (*68 respecti%el$* oreas ratio #eing s"aller due to

the "uch faster gro!th in do"estic credit in the post crisis period* If epected reco%er$ rates are

an indicator of the efficienc$ of an AMC, Mala$sias 7anaharta has outpaced the others !ith a

568 reco%er$ rate* This co"pares to AMCDs =)8 and TAMCs =58*12*

3achana +hrestha