2. INTRODUCTION
Asia is a region that is a home to 60% of the world’s
people, and where many economies were growing
by nearly 10% a year in real terms.
By late 1997,the economic outlook for many of the
Asian Tigers has changed drastically.
So the countries which were mostly affected by the
crisis are Indonesia, Thailand, South Korea. Hong
Kong, Laos, Malaysia, and the Philippines were
moderately hurt. Brunei, China, Singapore, Taiwan,
and Vietnam were less effected.
3. THAILAND
The first hint of the Asian currency crisis appeared
in Thailand .
Before crisis, Thailand was a country that had
averaged over 8% real GDP growth since the late
1980’s and joined the rapidly growing group of
countries known as the “Asian Tigers”.
4. CAUSES OF CRISIS IN THAILAND
In 1993, Thailand allowed offshore banking and
these banks offered high interest rates on deposit
that attracted tremendous amounts of foreign
savings. Loaded with foreign money, the banks
loaned carelessly and loan defaults began to rise.
Then, there was slow down in Thai exports due to
high competition from other countries . Thailand
was losing out in world markets due to a
combination of higher labor and production costs
and the strong value of the Thai baht in foreign
exchange markets.
5. SOUTH KOREA
South Korea’s economy is dominated by large
industrial conglomerates.
South Korea is the world’s largest producer of ships
and computer chips, and has the world’s fifth
largest car maker.
6. CAUSES OF CRISIS IN SOUTH KOREA
The state-guided banks lent based on political
preferences and favoritism rather than on proper
risk management.
The chaebol of multinational conglomerates that
dominate the economy , fueled by easy money,
borrowed too much , and expanded recklessly,
without regard for adequate returns.
This resulted in excess supply of goods in domestic
and international market which resulted in price
down of the products.
7. Many Korean firms were having trouble raising the
cash needed to make their interest payment.
The government asked the International Monetary
Fund[IMF] for $20 billion but the cost to clean up
the country’s disintegrating banking system range
from $60 billion to $100 billion.
8. IMF’S DEMANDS FROM SOUTH KOREA
IMF demanded South Korea to undertake
significant reforms in its corporate structure , and in
financial and labor markets
South Korea gave job guarantee to the workers but
put restraints on the growth of wages by banning
most trade union activities. This way production
cost and unemployment were kept in control.
IMF demanded that conglomerates and badly run
banks should be allowed to close in addition to the
ones that have already gone under.
9. INDONESIA
In July 1997, Indonesia’s monetary authorities
widened the rupiah currency trading band from 8%
to 12%. The rupiah suddenly came under severe
attack in August.
On 14 August 1997 , the managed floating
exchange rate regime was replaced by a free
floating exchange rate arrangement . The rupiah
dropped further .
IMF came forward with rescue package of $23
billion, but rupiah was sinking further due to string
demand of dollars, selling of rupiah , and fears over
corporate debts.
10. REASONS OF THE CRISIS
No prudent regulations
Lack of risk management
11. NO PRUDENT REGULATIONS
They liberalized their financial market.
Firms borrow money with unprecedented records.
On the lender side , financial institutions granted
credits to Asian firms who were already in debt.
Money lending by these financial institutions
accounted for 95% of the short termloans which
contributed to the crisis.
12. LACK RISK MANAGEMENT
Before the financial crisis , Asian market was lucrative.
Because of falling interest rate and liquidity expansion
financial institutions in the west rushed into the market
and fought for a greater market share by expanding
credit irresponsibly to projects obviously low in return.
Domestic firms and banks over-rely on government
because in Asia businessmen and government had
close relationship , which is referred as Crony
Capitalism.
Financial intermediaries thought not to bear the full cost
of failure because they believed the government will pay
for them. In other words , there was no incentives to
effectively manage the risk.
14. CURRENCY ATTACK
When the Thai government floated the baht in July
1997 the exchange rate dropped by 17% and so
the stock market came to chaos.
Due to the fluctuation of Thai Baht , Philippine
peso, Indonesian rupiah , Malaysia ringgit , Hong
Kong dollar had become targets for international
speculators
After the attack on Thai Baht started, market went
panic and foreign investors pulled out their money
all at once.
Then the exchange market of Asian countries was
flooded with the domestic currencies leading to
depreciation pressure on exchange rates
15. Many of Asian countries faced falling currencies,
devalued stock market price, rise in private debt
because most them had debt in foreign currency ,
they could not pay and then went bankrupt and
hence the crisis was all set.
17. SOCIAL ASPECT
Overall quality of life is downgraded
Government and household had no money to invest
on health and education.
They had fewer subsidies for higher level of
schooling so more children dropped out after
primary education and looked for employment .
Hence, lower level of illiteracy rate.
In health, traditional healer and self treatment were
used instead of modern medical care.
18. ECONOMICAL ASPECT
Asian countries become more open to FDI as they
needed foreign capital and technology to support
their recovery from crisis they needed to accept the
foreign investment conditions.
MNCs outsourced the production units to less
developed Asian countries to reduce production
cost.
19. POLITICAL ASPECT
Ironically, crisis had positive effect on this aspect.
The Asian countries started having more human
right protection act
UNICEF called for more child protection policies
and integration of child protection services as there
were more drop outs in these countries.
Government of Asian countries made broader
social protection policy
20. TECHNOLOGICAL ASPECT
Asian countries put more emphasize on
technological advancement .
They invested more on research and development
in order sharpen their competitive edge.
Currency band refers to some specific interval of values of a national currency, compared with currencies of other countries. A country selects a range oF ‘band’ , of values at which to set their currency and returns to fixed exchange rates if the value of their currency shifts outside this band.
