SlideShare une entreprise Scribd logo
1  sur  23
Welcome to Our
Presentation
Govt Intervention During Asian Crisis
Group-1
 Name
Sunanda Sarker
Md. Foysal Ahmed
A.S.M. Misbaul Islam
Md. Ataur Rahman
A. B. M. Kalim Ullah
Ahsanul Karim
 Roll No.
161201
161204
161220
161221
161245
161251
Agenda..
 Crisis in Thailand
 Crisis timeline
 The dilemma
 Asian
Weaknesses
 Impact of Asian
Crisis on different
countries
 Case Questions
Countries involved..
 Thailand
 Singapore
 Philippine
 Taiwan
 Indonesia
 Hong Kong
 Russia
 South Korea
 China
 Japan
 Latin America
 Europe
Thailand Case
 May 1997: Thailand spends billions of its foreign reserves to defend the
Thai baht against speculative attacks
 In case of Thailand:
 Allowing too many short-term capital flows to accumulate with a high
degree of currency speculation,
 Outflow of funds expedited the weakening of the bath, as foreign
investors exchanged theirbaht fortheirhome currencies,
 Sustaining a fixed exchange rate when it was no longersuitable,
 Lack of sufficient risk management system at the national level as well
as regional level in case of bank lending (defaulted loan piled up over
$30 billion),
 Products were not priced as competitively to US importers,
 Concerns of large current account deficits,
 Weakness in the Thai financial system, Thai govt.’s heavy borrowing
made the debt expensive to public.
 Speculative attacks brings down investor confidence causing- “capital
flight”
Crisis Timeline..
 July 1997
Thailand is forced to devalue the baht, which
drops the value of the baht by as much as 20%--
a record (had actually attempted a 15%
controlled devaluation)
Malaysia’s central bank intervenes to defend
the ringgit.
The Philippine peso is devalued. Indonesia
widens its trading band forthe rupiah in a move
to discourage speculators
The Singapore dollar starts a gradual decline.
Govt Intervention During Asian Crisis
Crisis timeline..Contd/.
 August1997
Thailand agrees to adopt tough economic
measures proposed by the IMF in return for a
$17 billion loan from the international lender
and Asian nations. The Thai government
closes 42 ailing finance companies and
imposes tax hikes as part of the IMF's
insistence on austerity
Indonesia abandons the rupiah's trading band
and allows the currency to float freely,
triggering a plunge in the currency
Crisis timeline..Contd/.
 October1997
Indonesia asks the IMFand World Bank forhelp after
the rupiah falls more than 30% in two months,
despite interventions by the country's central bank to
prop up the currency
Hong Kong's stock index falls 10.4% afterit raises
bank lending rates to 300% to fend off speculative
attacks on the Hong Kong dollar. The plunge on the
Hong Kong Stock Exchange wipes $29.3 billion off the
value of stock shares.
The South Korean won begins to weaken
The IMFagrees to a loan package forIndonesia that
eventually swells to $40 billion. In return, the
government closes 16 financially insolvent banks and
Crisis timeline..Contd/.
 November1997
Bank of Korea allows the won to fall below 1000 against
the dollar(record low)
 December1997
IMF approves a $57 billion bailout package to the South
Korea
As part of IMF economic restructuring plan, the Thai
government closes 56 insolvent finance companies (30,000
white collarjobs lost)
South Korea’s first president elected from country’s
opposition party. In days the won hits new low.
$3 billion emergency loan released by the world bank ,
Crisis timeline..Contd/.
 January 1998:
Release of Indonesia budget plan pulls the rupiah to an all-
time low
Inflation rises. Prices for basic food staples in Indonesia
increase by as much as 80%
The rupiah plunges to 12,000 rupiah against the dollar
 June 1998
Japan announces that its economy is in a recession
Yen falls to levels near 144 to the dollar. US treaury and
Federal reserve intervenes to prop up the yen
 August 1998
Wall Street reacts; the Dow plunges 300 points in its third
biggest loss
How Exchange rates changed
during Asian Crisis (June1997-
June 1998)
How Interest rates changed during the Asian Crisis
(Annualized interest rates as of June 1997 and of
June 1998 are represented by Number before
slash and Number after slash respectively)
Dilemma..
 Drop in currencies
Raise import prices leading to
inflation threat
Threat that potentially viable banks
and companies may become bankrupt
 Defend the currency
 would mean to raise interest rates
Threat of economic slump resulting in
the failure of banks
Asian Weaknesses..
 Weaknessesthat becameapparent after thecrisis:
1. Productivity: economic expansion beforecrisis
later explained by therapid growth of production
inputs(capital and labor) – but relatively little
increasein productivity
2. Banking Regulation: Ineffectivegovernment
supervision
3. Exchange rate regimes- Mostly pegged exchange
ratesystem
4. Legal Framework: lack of structured legal
framework to deal with bankruptcy
Impact of Asian Crisis All Over
the World ..
Currency value declined
Interest rate increased
Demand and national income reduced
Bad loans piled up
Cost of borrowing increased
Stock prices reduced in Hong Kong
Large firms in Japan announced shut down
Export oriented countries rely on Asian products
heavily affected by this crisis
Bond rating as well as bond price reduced in
Latin America
Case Questions..
1. Was the depreciation of the Asian currencies during
the Asian crisis due to trade flows or capital flows?
Why do think the degree of movement over a short
period may depend on whether the reason is trade
flows or capital flows?
2. Why do you think the Indonesia rupiah was more
exposed to an abrupt decline in value than the
Japanese yen during the Asian crisis (even if their
economies experienced the same degree of
weakness)?
3. During the Asian crisis, direct intervention did not
prevent depreciation of currencies. Offer your
explanation for why the interventions did not work.
4. During the Asian crisis, some of the local firms in Asia
borrowed dollars rather than local currency to support local
operations. Why would they borrow dollars when they really
needed their local currency to support operations? Why did
this strategy backfire?
5. The Asian crisis showed that a currency crisis could affect
interest rates. Why did the crisis put upward pressure on
interest rates in Asian countries? Why did it put downward
pressure on U.S. interest rates?
6. It is commonly argued that high interest rates reflect the
expectation of high inflation. Based on this theory, how
would expectations of Asian exchange rates change after
interest rates in Asia increased? Why? Is the underlying
reason logical?
Case Questions..
7. During the Asian crisis, why did the discount of the forward rate of
Asian currencies change? Do you think it increased or decreased?
Why?
8. During the Hong Kong crisis, the Hong Kong stock market declined
substantially over a four-day period due to concerns in the foreign
exchange market. Why would stock prices decline due to concerns
in the foreign exchange market? Why would some countries be
more susceptible to this type of situation than others?
9. On August 26, 1998, the day that Russia decided to let the ruble
float freely, the ruble declined by about 50 percent. N the following
day, called bloody Thursday, stock markets around the world
(including the U.S.) declined by more than 4 percent. Why do you
think the decline in the ruble had such a global impact on stock
prices? Was the market’s reaction rational? Would the effect have
been different if the ruble’s plunge had occurred in an earlier time
period, such as four years earlier?
Case Questions..
10. Normally, a weak local currency is expected to stimulate the
local economy. Yet, it appeared that the weak currencies of
Asia adversely affected their economies. Why do you think
the weakening of the currencies did not initially improve the
economies during the Asian crisis?
11. During the Asian crisis, Hong Kong and China successfully
intervened (by raising their interest rates) to protect their
local currencies from depreciating. Nevertheless, these
countries were also adversely affected by the Asian crisis.
Why do you think the actions to protect the values of their
currencies affected these countries’ economies. Why do
you think the weakness of other Asian currencies against
the dollar and the stability of the Chinese and Hong Kong
currencies against the dollar adversely affected their
economies?
Case Questions..
12. Why do you think the values of bonds issued by Asian governments
declined during the Asian crisis? Why do you think the values of
Latin American bonds declined in response to the Asian crisis?
13. Why do you think the depreciation of the Asian currencies adversely
affected U.S. firms? (There are at least three reasons, each related
to a different type of exposure of some U.S. firms to exchange rate
risk.)
14. During the Asian crisis, the currencies of many Asian countries
declined even though their governments attempted to intervene with
direct intervention or by raising interest rates. Given that the abrupt
depreciation of the currencies was attributed to an abrupt outflow of
funds in the financial markets, what alternative Asian government
action might have been more successful in preventing a substantial
decline in the currencies’ values? Are there any possible adverse
effects of your proposed solution?
Case Questions..
Questions?????...

Contenu connexe

Tendances

Asian Financial Crisis
Asian Financial CrisisAsian Financial Crisis
Asian Financial CrisisEliel Daang
 
Bài tập nhtm 2 (3 tín chỉ) october 2014 đáp án
Bài tập nhtm 2 (3 tín chỉ) october 2014    đáp ánBài tập nhtm 2 (3 tín chỉ) october 2014    đáp án
Bài tập nhtm 2 (3 tín chỉ) october 2014 đáp ánCá Ngáo
 
Asian financial crisis 1997 theme 2
Asian financial crisis 1997 theme 2Asian financial crisis 1997 theme 2
Asian financial crisis 1997 theme 2saakshi1992
 
Asian financial crisis 1997 1998
Asian financial crisis 1997 1998Asian financial crisis 1997 1998
Asian financial crisis 1997 1998vanithaa kumar
 
Tỷ giá & Can thiệp chính sách
Tỷ giá & Can thiệp chính sáchTỷ giá & Can thiệp chính sách
Tỷ giá & Can thiệp chính sáchPhanQuocTri
 
Sistem moneter-internasional
Sistem moneter-internasionalSistem moneter-internasional
Sistem moneter-internasionalEryPrasetyo5
 
Multinational Finance Solutions
Multinational Finance SolutionsMultinational Finance Solutions
Multinational Finance SolutionsBrandonn123
 
Chương 3. quản trị rr hối đoái
Chương 3. quản trị rr hối đoáiChương 3. quản trị rr hối đoái
Chương 3. quản trị rr hối đoáiDoan Tran Ngocvu
 
CDS và khủng hoảng tài chính
CDS và khủng hoảng tài chínhCDS và khủng hoảng tài chính
CDS và khủng hoảng tài chínhHột Mít
 
Cung tiền tệ
Cung tiền tệCung tiền tệ
Cung tiền tệankeonao
 
hệ thống tiền tệ quốc tế
hệ thống tiền tệ quốc tếhệ thống tiền tệ quốc tế
hệ thống tiền tệ quốc tếvietanhdn069
 
Thực trạng Đô la hóa Việt Nam
Thực trạng Đô la hóa Việt Nam Thực trạng Đô la hóa Việt Nam
Thực trạng Đô la hóa Việt Nam Thu-Phuong DO
 
Asian Financial Crisis
Asian Financial CrisisAsian Financial Crisis
Asian Financial CrisisFNian
 
TỶ GIÁ VÀ CAN THIỆP CHÍNH SÁCH CỦA CHÍNH PHỦ
TỶ GIÁ VÀ CAN THIỆP CHÍNH SÁCH CỦA CHÍNH PHỦTỶ GIÁ VÀ CAN THIỆP CHÍNH SÁCH CỦA CHÍNH PHỦ
TỶ GIÁ VÀ CAN THIỆP CHÍNH SÁCH CỦA CHÍNH PHỦcobala1012
 
TỶ GIÁ VÀ THỊ TRƯỜNG HỐI ĐOÁI
TỶ GIÁ VÀ THỊ TRƯỜNG HỐI ĐOÁITỶ GIÁ VÀ THỊ TRƯỜNG HỐI ĐOÁI
TỶ GIÁ VÀ THỊ TRƯỜNG HỐI ĐOÁIpikachukt04
 
Krisis dan Globalisasi Teori Pembangunan
Krisis dan Globalisasi Teori PembangunanKrisis dan Globalisasi Teori Pembangunan
Krisis dan Globalisasi Teori PembangunanMuhammad Khoirul Fuddin
 

Tendances (20)

Bai nop
Bai nopBai nop
Bai nop
 
Asian Financial Crisis
Asian Financial CrisisAsian Financial Crisis
Asian Financial Crisis
 
Bài tập nhtm 2 (3 tín chỉ) october 2014 đáp án
Bài tập nhtm 2 (3 tín chỉ) october 2014    đáp ánBài tập nhtm 2 (3 tín chỉ) october 2014    đáp án
Bài tập nhtm 2 (3 tín chỉ) october 2014 đáp án
 
Euro Crisis
Euro CrisisEuro Crisis
Euro Crisis
 
Asian financial crisis 1997 theme 2
Asian financial crisis 1997 theme 2Asian financial crisis 1997 theme 2
Asian financial crisis 1997 theme 2
 
Asian financial crisis 1997 1998
Asian financial crisis 1997 1998Asian financial crisis 1997 1998
Asian financial crisis 1997 1998
 
Tỷ giá & Can thiệp chính sách
Tỷ giá & Can thiệp chính sáchTỷ giá & Can thiệp chính sách
Tỷ giá & Can thiệp chính sách
 
Sistem moneter internasional
Sistem moneter internasionalSistem moneter internasional
Sistem moneter internasional
 
Sistem moneter-internasional
Sistem moneter-internasionalSistem moneter-internasional
Sistem moneter-internasional
 
Multinational Finance Solutions
Multinational Finance SolutionsMultinational Finance Solutions
Multinational Finance Solutions
 
Chương 3. quản trị rr hối đoái
Chương 3. quản trị rr hối đoáiChương 3. quản trị rr hối đoái
Chương 3. quản trị rr hối đoái
 
CDS và khủng hoảng tài chính
CDS và khủng hoảng tài chínhCDS và khủng hoảng tài chính
CDS và khủng hoảng tài chính
 
Understanding the Eurozone Crisis
Understanding the Eurozone CrisisUnderstanding the Eurozone Crisis
Understanding the Eurozone Crisis
 
Cung tiền tệ
Cung tiền tệCung tiền tệ
Cung tiền tệ
 
hệ thống tiền tệ quốc tế
hệ thống tiền tệ quốc tếhệ thống tiền tệ quốc tế
hệ thống tiền tệ quốc tế
 
Thực trạng Đô la hóa Việt Nam
Thực trạng Đô la hóa Việt Nam Thực trạng Đô la hóa Việt Nam
Thực trạng Đô la hóa Việt Nam
 
Asian Financial Crisis
Asian Financial CrisisAsian Financial Crisis
Asian Financial Crisis
 
TỶ GIÁ VÀ CAN THIỆP CHÍNH SÁCH CỦA CHÍNH PHỦ
TỶ GIÁ VÀ CAN THIỆP CHÍNH SÁCH CỦA CHÍNH PHỦTỶ GIÁ VÀ CAN THIỆP CHÍNH SÁCH CỦA CHÍNH PHỦ
TỶ GIÁ VÀ CAN THIỆP CHÍNH SÁCH CỦA CHÍNH PHỦ
 
TỶ GIÁ VÀ THỊ TRƯỜNG HỐI ĐOÁI
TỶ GIÁ VÀ THỊ TRƯỜNG HỐI ĐOÁITỶ GIÁ VÀ THỊ TRƯỜNG HỐI ĐOÁI
TỶ GIÁ VÀ THỊ TRƯỜNG HỐI ĐOÁI
 
Krisis dan Globalisasi Teori Pembangunan
Krisis dan Globalisasi Teori PembangunanKrisis dan Globalisasi Teori Pembangunan
Krisis dan Globalisasi Teori Pembangunan
 

En vedette

Government influence on exchange rate in bangladesh
Government influence on exchange rate in bangladeshGovernment influence on exchange rate in bangladesh
Government influence on exchange rate in bangladeshSalsabil Rahman
 
Financial Instability, Regulatory Reforms, and Bank Governance: Lessons from ...
Financial Instability, Regulatory Reforms, and Bank Governance: Lessons from ...Financial Instability, Regulatory Reforms, and Bank Governance: Lessons from ...
Financial Instability, Regulatory Reforms, and Bank Governance: Lessons from ...pkconference
 
Keynes and the asia crisis
Keynes and the asia crisisKeynes and the asia crisis
Keynes and the asia crisisJonty Mohta
 
Relationships between Inflation, Interest Rates, and Exchange Rates
Relationships between Inflation, Interest Rates, and Exchange Rates Relationships between Inflation, Interest Rates, and Exchange Rates
Relationships between Inflation, Interest Rates, and Exchange Rates ICAB
 
Government influence on exchange rates
Government influence on exchange ratesGovernment influence on exchange rates
Government influence on exchange ratesReza Raharjo
 
The Asian Financial Crisis, Bosnia & Organizational Jeet Kune Do or Culture, ...
The Asian Financial Crisis, Bosnia & Organizational Jeet Kune Do or Culture, ...The Asian Financial Crisis, Bosnia & Organizational Jeet Kune Do or Culture, ...
The Asian Financial Crisis, Bosnia & Organizational Jeet Kune Do or Culture, ...VSee
 
106M 1997 Asian Financial Crisis
106M 1997 Asian Financial Crisis106M 1997 Asian Financial Crisis
106M 1997 Asian Financial CrisisGary Vartanian
 
FDI, economic decline and recovery: lessons from Asian Financial Crisis
FDI, economic decline and recovery: lessons from Asian Financial CrisisFDI, economic decline and recovery: lessons from Asian Financial Crisis
FDI, economic decline and recovery: lessons from Asian Financial CrisisFarhad Hafez
 
The Social Impact of the Asian Crisis
The Social Impact of the Asian CrisisThe Social Impact of the Asian Crisis
The Social Impact of the Asian CrisisOlivier Serrat
 
South east asian crisis
South east asian crisisSouth east asian crisis
South east asian crisisNishant Negi
 
south east asian currency crisis
south east asian currency crisissouth east asian currency crisis
south east asian currency crisisSandeep Bilwal
 
GOVERNMENT INFLUENCE ON EXCHANGE RATES
GOVERNMENT INFLUENCE ON EXCHANGE RATESGOVERNMENT INFLUENCE ON EXCHANGE RATES
GOVERNMENT INFLUENCE ON EXCHANGE RATESICAB
 
Asian financial crisis 1997
Asian financial crisis   1997Asian financial crisis   1997
Asian financial crisis 1997Sandeep Bhattad
 

En vedette (15)

Asian financial crisis 1997
Asian financial crisis 1997Asian financial crisis 1997
Asian financial crisis 1997
 
Government influence on exchange rate in bangladesh
Government influence on exchange rate in bangladeshGovernment influence on exchange rate in bangladesh
Government influence on exchange rate in bangladesh
 
Financial Instability, Regulatory Reforms, and Bank Governance: Lessons from ...
Financial Instability, Regulatory Reforms, and Bank Governance: Lessons from ...Financial Instability, Regulatory Reforms, and Bank Governance: Lessons from ...
Financial Instability, Regulatory Reforms, and Bank Governance: Lessons from ...
 
Keynes and the asia crisis
Keynes and the asia crisisKeynes and the asia crisis
Keynes and the asia crisis
 
Macro exchange rate
Macro exchange rateMacro exchange rate
Macro exchange rate
 
Relationships between Inflation, Interest Rates, and Exchange Rates
Relationships between Inflation, Interest Rates, and Exchange Rates Relationships between Inflation, Interest Rates, and Exchange Rates
Relationships between Inflation, Interest Rates, and Exchange Rates
 
Government influence on exchange rates
Government influence on exchange ratesGovernment influence on exchange rates
Government influence on exchange rates
 
The Asian Financial Crisis, Bosnia & Organizational Jeet Kune Do or Culture, ...
The Asian Financial Crisis, Bosnia & Organizational Jeet Kune Do or Culture, ...The Asian Financial Crisis, Bosnia & Organizational Jeet Kune Do or Culture, ...
The Asian Financial Crisis, Bosnia & Organizational Jeet Kune Do or Culture, ...
 
106M 1997 Asian Financial Crisis
106M 1997 Asian Financial Crisis106M 1997 Asian Financial Crisis
106M 1997 Asian Financial Crisis
 
FDI, economic decline and recovery: lessons from Asian Financial Crisis
FDI, economic decline and recovery: lessons from Asian Financial CrisisFDI, economic decline and recovery: lessons from Asian Financial Crisis
FDI, economic decline and recovery: lessons from Asian Financial Crisis
 
The Social Impact of the Asian Crisis
The Social Impact of the Asian CrisisThe Social Impact of the Asian Crisis
The Social Impact of the Asian Crisis
 
South east asian crisis
South east asian crisisSouth east asian crisis
South east asian crisis
 
south east asian currency crisis
south east asian currency crisissouth east asian currency crisis
south east asian currency crisis
 
GOVERNMENT INFLUENCE ON EXCHANGE RATES
GOVERNMENT INFLUENCE ON EXCHANGE RATESGOVERNMENT INFLUENCE ON EXCHANGE RATES
GOVERNMENT INFLUENCE ON EXCHANGE RATES
 
Asian financial crisis 1997
Asian financial crisis   1997Asian financial crisis   1997
Asian financial crisis 1997
 

Similaire à Govt Intervention During Asian Crisis

Asian financial crisis
Asian financial crisisAsian financial crisis
Asian financial crisisPawan Kawan
 
South east asian financial crises 1997
South east asian financial  crises 1997South east asian financial  crises 1997
South east asian financial crises 1997Praveen Ravuri
 
Asian crisis
Asian crisisAsian crisis
Asian crisismurshid E
 
East asian crisis
East asian crisisEast asian crisis
East asian crisiscs1090211
 
Global Financial Update v2
Global Financial Update v2Global Financial Update v2
Global Financial Update v2SURAJ MISHRA
 
Global financial update v2
Global financial update v2Global financial update v2
Global financial update v2SURAJ MISHRA
 
Bubble Spotting - The East Asia Currency and Debt crisis of 1997
Bubble Spotting - The East Asia Currency and Debt crisis of 1997Bubble Spotting - The East Asia Currency and Debt crisis of 1997
Bubble Spotting - The East Asia Currency and Debt crisis of 1997Benjamin Van As
 
Asianfinancialcrisis 1997-120302214630-phpapp02 (1)
Asianfinancialcrisis 1997-120302214630-phpapp02 (1)Asianfinancialcrisis 1997-120302214630-phpapp02 (1)
Asianfinancialcrisis 1997-120302214630-phpapp02 (1)Anshul Tripathi
 
Topic 12 Speculative Attacks on Currencies.pptx
Topic 12 Speculative Attacks on Currencies.pptxTopic 12 Speculative Attacks on Currencies.pptx
Topic 12 Speculative Attacks on Currencies.pptxPeterMasters10
 
Russian Financial Crisis (1998)
Russian Financial Crisis (1998)Russian Financial Crisis (1998)
Russian Financial Crisis (1998)Ariana Davis
 
Factors That Caused The 1997 East Asian Financial Crisis
Factors That Caused The 1997 East Asian Financial CrisisFactors That Caused The 1997 East Asian Financial Crisis
Factors That Caused The 1997 East Asian Financial CrisisAmy Wells
 
Will the US Rebound Cause Another Emerging Markets Crisis?
Will the US Rebound Cause Another Emerging Markets Crisis?Will the US Rebound Cause Another Emerging Markets Crisis?
Will the US Rebound Cause Another Emerging Markets Crisis?Brien Desilets
 
The South East Asia Crisis
The South East Asia CrisisThe South East Asia Crisis
The South East Asia CrisisDhiraj Surana
 
Asian financial crisis
Asian financial crisisAsian financial crisis
Asian financial crisislotus377
 
Remarks From The Thailand Crisis
Remarks From The Thailand CrisisRemarks From The Thailand Crisis
Remarks From The Thailand CrisisMelissa Dudas
 
Causes of the 1997 South East Asian Financial Crises & its Impact on the Fina...
Causes of the 1997 South East Asian Financial Crises & its Impact on the Fina...Causes of the 1997 South East Asian Financial Crises & its Impact on the Fina...
Causes of the 1997 South East Asian Financial Crises & its Impact on the Fina...Krutika Panari
 

Similaire à Govt Intervention During Asian Crisis (20)

Asian financial crisis
Asian financial crisisAsian financial crisis
Asian financial crisis
 
South east asian financial crises 1997
South east asian financial  crises 1997South east asian financial  crises 1997
South east asian financial crises 1997
 
Asian crisis
Asian crisisAsian crisis
Asian crisis
 
East asian crisis
East asian crisisEast asian crisis
East asian crisis
 
international
internationalinternational
international
 
Global Financial Update v2
Global Financial Update v2Global Financial Update v2
Global Financial Update v2
 
Global financial update v2
Global financial update v2Global financial update v2
Global financial update v2
 
Bubble Spotting - The East Asia Currency and Debt crisis of 1997
Bubble Spotting - The East Asia Currency and Debt crisis of 1997Bubble Spotting - The East Asia Currency and Debt crisis of 1997
Bubble Spotting - The East Asia Currency and Debt crisis of 1997
 
Asianfinancialcrisis 1997-120302214630-phpapp02 (1)
Asianfinancialcrisis 1997-120302214630-phpapp02 (1)Asianfinancialcrisis 1997-120302214630-phpapp02 (1)
Asianfinancialcrisis 1997-120302214630-phpapp02 (1)
 
Topic 12 Speculative Attacks on Currencies.pptx
Topic 12 Speculative Attacks on Currencies.pptxTopic 12 Speculative Attacks on Currencies.pptx
Topic 12 Speculative Attacks on Currencies.pptx
 
Russian Financial Crisis (1998)
Russian Financial Crisis (1998)Russian Financial Crisis (1998)
Russian Financial Crisis (1998)
 
Factors That Caused The 1997 East Asian Financial Crisis
Factors That Caused The 1997 East Asian Financial CrisisFactors That Caused The 1997 East Asian Financial Crisis
Factors That Caused The 1997 East Asian Financial Crisis
 
Will the US Rebound Cause Another Emerging Markets Crisis?
Will the US Rebound Cause Another Emerging Markets Crisis?Will the US Rebound Cause Another Emerging Markets Crisis?
Will the US Rebound Cause Another Emerging Markets Crisis?
 
The South East Asia Crisis
The South East Asia CrisisThe South East Asia Crisis
The South East Asia Crisis
 
Asian financial crisis
Asian financial crisisAsian financial crisis
Asian financial crisis
 
Kim clijster
Kim clijsterKim clijster
Kim clijster
 
Remarks From The Thailand Crisis
Remarks From The Thailand CrisisRemarks From The Thailand Crisis
Remarks From The Thailand Crisis
 
Causes of the 1997 South East Asian Financial Crises & its Impact on the Fina...
Causes of the 1997 South East Asian Financial Crises & its Impact on the Fina...Causes of the 1997 South East Asian Financial Crises & its Impact on the Fina...
Causes of the 1997 South East Asian Financial Crises & its Impact on the Fina...
 
Contemporary Issues
Contemporary IssuesContemporary Issues
Contemporary Issues
 
Chap021 Essay
Chap021 EssayChap021 Essay
Chap021 Essay
 

Plus de Sunanda Sarker

Case Study: Costco Wholesale in 2008: Mission, Business Model & Strategy
Case Study:  Costco Wholesale in 2008: Mission, Business Model & Strategy Case Study:  Costco Wholesale in 2008: Mission, Business Model & Strategy
Case Study: Costco Wholesale in 2008: Mission, Business Model & Strategy Sunanda Sarker
 
Current account deficit of india
Current account deficit of indiaCurrent account deficit of india
Current account deficit of indiaSunanda Sarker
 
Factors Influencing the GDP in Bangladesh
Factors Influencing the GDP in BangladeshFactors Influencing the GDP in Bangladesh
Factors Influencing the GDP in BangladeshSunanda Sarker
 
Ratio Analysis of ACI Limited (Bangladesh)
Ratio Analysis of ACI Limited (Bangladesh)Ratio Analysis of ACI Limited (Bangladesh)
Ratio Analysis of ACI Limited (Bangladesh)Sunanda Sarker
 

Plus de Sunanda Sarker (7)

Case Study: Costco Wholesale in 2008: Mission, Business Model & Strategy
Case Study:  Costco Wholesale in 2008: Mission, Business Model & Strategy Case Study:  Costco Wholesale in 2008: Mission, Business Model & Strategy
Case Study: Costco Wholesale in 2008: Mission, Business Model & Strategy
 
Investment Settings
Investment SettingsInvestment Settings
Investment Settings
 
Current account deficit of india
Current account deficit of indiaCurrent account deficit of india
Current account deficit of india
 
e-CRM in Banks
e-CRM in Bankse-CRM in Banks
e-CRM in Banks
 
Factors Influencing the GDP in Bangladesh
Factors Influencing the GDP in BangladeshFactors Influencing the GDP in Bangladesh
Factors Influencing the GDP in Bangladesh
 
Ratio Analysis of ACI Limited (Bangladesh)
Ratio Analysis of ACI Limited (Bangladesh)Ratio Analysis of ACI Limited (Bangladesh)
Ratio Analysis of ACI Limited (Bangladesh)
 
Too old to learn
Too old to learnToo old to learn
Too old to learn
 

Dernier

The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...Antonis Zairis
 
India Economic Survey Complete for the year of 2022 to 2023
India Economic Survey Complete for the year of 2022 to 2023India Economic Survey Complete for the year of 2022 to 2023
India Economic Survey Complete for the year of 2022 to 2023SkillCircle
 
What Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AIWhat Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AI360factors
 
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdfLundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdfAdnet Communications
 
Stock Market Brief Deck for March 19 2024.pdf
Stock Market Brief Deck for March 19 2024.pdfStock Market Brief Deck for March 19 2024.pdf
Stock Market Brief Deck for March 19 2024.pdfMichael Silva
 
Mphasis - Schwab Newsletter PDF - Sample 8707
Mphasis - Schwab Newsletter PDF - Sample 8707Mphasis - Schwab Newsletter PDF - Sample 8707
Mphasis - Schwab Newsletter PDF - Sample 8707harshan90
 
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptxSlideshare - ONS Economic Forum Slidepack - 18 March 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptxOffice for National Statistics
 
20240315 _E-Invoicing Digiteal. .pptx
20240315 _E-Invoicing Digiteal.    .pptx20240315 _E-Invoicing Digiteal.    .pptx
20240315 _E-Invoicing Digiteal. .pptxFinTech Belgium
 
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...Matthews Bantsijang
 
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.KumarJayaraman3
 
Taipei, A Hidden Jewel in East Asia - PR Strategy for Tourism
Taipei, A Hidden Jewel in East Asia - PR Strategy for TourismTaipei, A Hidden Jewel in East Asia - PR Strategy for Tourism
Taipei, A Hidden Jewel in East Asia - PR Strategy for TourismBrian Lin
 
20240314 Calibre March 2024 Investor Presentation (FINAL).pdf
20240314 Calibre March 2024 Investor Presentation (FINAL).pdf20240314 Calibre March 2024 Investor Presentation (FINAL).pdf
20240314 Calibre March 2024 Investor Presentation (FINAL).pdfAdnet Communications
 
RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGecko
RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGeckoRWA Report 2024: Rise of Real-World Assets in Crypto | CoinGecko
RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGeckoCoinGecko
 
Work and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingWork and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingHenry Tapper
 
The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?Stephen Perrenod
 
Introduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an EntrepreneurIntroduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an Entrepreneurabcisahunter
 
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTESACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTESKumarJayaraman3
 

Dernier (20)

New Monthly Enterprises Survey. Issue 21. (01.2024) Ukrainian Business in War...
New Monthly Enterprises Survey. Issue 21. (01.2024) Ukrainian Business in War...New Monthly Enterprises Survey. Issue 21. (01.2024) Ukrainian Business in War...
New Monthly Enterprises Survey. Issue 21. (01.2024) Ukrainian Business in War...
 
Monthly Economic Monitoring of Ukraine No.230, March 2024
Monthly Economic Monitoring of Ukraine No.230, March 2024Monthly Economic Monitoring of Ukraine No.230, March 2024
Monthly Economic Monitoring of Ukraine No.230, March 2024
 
The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...The unequal battle of inflation and the appropriate sustainable solution | Eu...
The unequal battle of inflation and the appropriate sustainable solution | Eu...
 
India Economic Survey Complete for the year of 2022 to 2023
India Economic Survey Complete for the year of 2022 to 2023India Economic Survey Complete for the year of 2022 to 2023
India Economic Survey Complete for the year of 2022 to 2023
 
What Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AIWhat Key Factors Should Risk Officers Consider When Using Generative AI
What Key Factors Should Risk Officers Consider When Using Generative AI
 
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdfLundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
Lundin Gold March 2024 Corporate Presentation - PDAC v1.pdf
 
Stock Market Brief Deck for March 19 2024.pdf
Stock Market Brief Deck for March 19 2024.pdfStock Market Brief Deck for March 19 2024.pdf
Stock Market Brief Deck for March 19 2024.pdf
 
Mphasis - Schwab Newsletter PDF - Sample 8707
Mphasis - Schwab Newsletter PDF - Sample 8707Mphasis - Schwab Newsletter PDF - Sample 8707
Mphasis - Schwab Newsletter PDF - Sample 8707
 
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptxSlideshare - ONS Economic Forum Slidepack - 18 March 2024.pptx
Slideshare - ONS Economic Forum Slidepack - 18 March 2024.pptx
 
20240315 _E-Invoicing Digiteal. .pptx
20240315 _E-Invoicing Digiteal.    .pptx20240315 _E-Invoicing Digiteal.    .pptx
20240315 _E-Invoicing Digiteal. .pptx
 
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...
Remembering my Totem _Unity is Strength_ growing in Bophuthatswana_Matthews B...
 
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.
ACCOUNTING FOR BUSINESS.II DEPARTMENTAL ACCOUNTS.
 
Taipei, A Hidden Jewel in East Asia - PR Strategy for Tourism
Taipei, A Hidden Jewel in East Asia - PR Strategy for TourismTaipei, A Hidden Jewel in East Asia - PR Strategy for Tourism
Taipei, A Hidden Jewel in East Asia - PR Strategy for Tourism
 
20240314 Calibre March 2024 Investor Presentation (FINAL).pdf
20240314 Calibre March 2024 Investor Presentation (FINAL).pdf20240314 Calibre March 2024 Investor Presentation (FINAL).pdf
20240314 Calibre March 2024 Investor Presentation (FINAL).pdf
 
RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGecko
RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGeckoRWA Report 2024: Rise of Real-World Assets in Crypto | CoinGecko
RWA Report 2024: Rise of Real-World Assets in Crypto | CoinGecko
 
Effects & Policies Of Bank Consolidation
Effects & Policies Of Bank ConsolidationEffects & Policies Of Bank Consolidation
Effects & Policies Of Bank Consolidation
 
Work and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB fundingWork and Pensions report into UK corporate DB funding
Work and Pensions report into UK corporate DB funding
 
The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?The Power Laws of Bitcoin: How can an S-curve be a power law?
The Power Laws of Bitcoin: How can an S-curve be a power law?
 
Introduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an EntrepreneurIntroduction to Entrepreneurship and Characteristics of an Entrepreneur
Introduction to Entrepreneurship and Characteristics of an Entrepreneur
 
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTESACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES
 

Govt Intervention During Asian Crisis

  • 3. Group-1  Name Sunanda Sarker Md. Foysal Ahmed A.S.M. Misbaul Islam Md. Ataur Rahman A. B. M. Kalim Ullah Ahsanul Karim  Roll No. 161201 161204 161220 161221 161245 161251
  • 4. Agenda..  Crisis in Thailand  Crisis timeline  The dilemma  Asian Weaknesses  Impact of Asian Crisis on different countries  Case Questions
  • 5. Countries involved..  Thailand  Singapore  Philippine  Taiwan  Indonesia  Hong Kong  Russia  South Korea  China  Japan  Latin America  Europe
  • 6. Thailand Case  May 1997: Thailand spends billions of its foreign reserves to defend the Thai baht against speculative attacks  In case of Thailand:  Allowing too many short-term capital flows to accumulate with a high degree of currency speculation,  Outflow of funds expedited the weakening of the bath, as foreign investors exchanged theirbaht fortheirhome currencies,  Sustaining a fixed exchange rate when it was no longersuitable,  Lack of sufficient risk management system at the national level as well as regional level in case of bank lending (defaulted loan piled up over $30 billion),  Products were not priced as competitively to US importers,  Concerns of large current account deficits,  Weakness in the Thai financial system, Thai govt.’s heavy borrowing made the debt expensive to public.  Speculative attacks brings down investor confidence causing- “capital flight”
  • 7. Crisis Timeline..  July 1997 Thailand is forced to devalue the baht, which drops the value of the baht by as much as 20%-- a record (had actually attempted a 15% controlled devaluation) Malaysia’s central bank intervenes to defend the ringgit. The Philippine peso is devalued. Indonesia widens its trading band forthe rupiah in a move to discourage speculators The Singapore dollar starts a gradual decline.
  • 9. Crisis timeline..Contd/.  August1997 Thailand agrees to adopt tough economic measures proposed by the IMF in return for a $17 billion loan from the international lender and Asian nations. The Thai government closes 42 ailing finance companies and imposes tax hikes as part of the IMF's insistence on austerity Indonesia abandons the rupiah's trading band and allows the currency to float freely, triggering a plunge in the currency
  • 10. Crisis timeline..Contd/.  October1997 Indonesia asks the IMFand World Bank forhelp after the rupiah falls more than 30% in two months, despite interventions by the country's central bank to prop up the currency Hong Kong's stock index falls 10.4% afterit raises bank lending rates to 300% to fend off speculative attacks on the Hong Kong dollar. The plunge on the Hong Kong Stock Exchange wipes $29.3 billion off the value of stock shares. The South Korean won begins to weaken The IMFagrees to a loan package forIndonesia that eventually swells to $40 billion. In return, the government closes 16 financially insolvent banks and
  • 11. Crisis timeline..Contd/.  November1997 Bank of Korea allows the won to fall below 1000 against the dollar(record low)  December1997 IMF approves a $57 billion bailout package to the South Korea As part of IMF economic restructuring plan, the Thai government closes 56 insolvent finance companies (30,000 white collarjobs lost) South Korea’s first president elected from country’s opposition party. In days the won hits new low. $3 billion emergency loan released by the world bank ,
  • 12. Crisis timeline..Contd/.  January 1998: Release of Indonesia budget plan pulls the rupiah to an all- time low Inflation rises. Prices for basic food staples in Indonesia increase by as much as 80% The rupiah plunges to 12,000 rupiah against the dollar  June 1998 Japan announces that its economy is in a recession Yen falls to levels near 144 to the dollar. US treaury and Federal reserve intervenes to prop up the yen  August 1998 Wall Street reacts; the Dow plunges 300 points in its third biggest loss
  • 13. How Exchange rates changed during Asian Crisis (June1997- June 1998)
  • 14. How Interest rates changed during the Asian Crisis (Annualized interest rates as of June 1997 and of June 1998 are represented by Number before slash and Number after slash respectively)
  • 15. Dilemma..  Drop in currencies Raise import prices leading to inflation threat Threat that potentially viable banks and companies may become bankrupt  Defend the currency  would mean to raise interest rates Threat of economic slump resulting in the failure of banks
  • 16. Asian Weaknesses..  Weaknessesthat becameapparent after thecrisis: 1. Productivity: economic expansion beforecrisis later explained by therapid growth of production inputs(capital and labor) – but relatively little increasein productivity 2. Banking Regulation: Ineffectivegovernment supervision 3. Exchange rate regimes- Mostly pegged exchange ratesystem 4. Legal Framework: lack of structured legal framework to deal with bankruptcy
  • 17. Impact of Asian Crisis All Over the World .. Currency value declined Interest rate increased Demand and national income reduced Bad loans piled up Cost of borrowing increased Stock prices reduced in Hong Kong Large firms in Japan announced shut down Export oriented countries rely on Asian products heavily affected by this crisis Bond rating as well as bond price reduced in Latin America
  • 18. Case Questions.. 1. Was the depreciation of the Asian currencies during the Asian crisis due to trade flows or capital flows? Why do think the degree of movement over a short period may depend on whether the reason is trade flows or capital flows? 2. Why do you think the Indonesia rupiah was more exposed to an abrupt decline in value than the Japanese yen during the Asian crisis (even if their economies experienced the same degree of weakness)? 3. During the Asian crisis, direct intervention did not prevent depreciation of currencies. Offer your explanation for why the interventions did not work.
  • 19. 4. During the Asian crisis, some of the local firms in Asia borrowed dollars rather than local currency to support local operations. Why would they borrow dollars when they really needed their local currency to support operations? Why did this strategy backfire? 5. The Asian crisis showed that a currency crisis could affect interest rates. Why did the crisis put upward pressure on interest rates in Asian countries? Why did it put downward pressure on U.S. interest rates? 6. It is commonly argued that high interest rates reflect the expectation of high inflation. Based on this theory, how would expectations of Asian exchange rates change after interest rates in Asia increased? Why? Is the underlying reason logical? Case Questions..
  • 20. 7. During the Asian crisis, why did the discount of the forward rate of Asian currencies change? Do you think it increased or decreased? Why? 8. During the Hong Kong crisis, the Hong Kong stock market declined substantially over a four-day period due to concerns in the foreign exchange market. Why would stock prices decline due to concerns in the foreign exchange market? Why would some countries be more susceptible to this type of situation than others? 9. On August 26, 1998, the day that Russia decided to let the ruble float freely, the ruble declined by about 50 percent. N the following day, called bloody Thursday, stock markets around the world (including the U.S.) declined by more than 4 percent. Why do you think the decline in the ruble had such a global impact on stock prices? Was the market’s reaction rational? Would the effect have been different if the ruble’s plunge had occurred in an earlier time period, such as four years earlier? Case Questions..
  • 21. 10. Normally, a weak local currency is expected to stimulate the local economy. Yet, it appeared that the weak currencies of Asia adversely affected their economies. Why do you think the weakening of the currencies did not initially improve the economies during the Asian crisis? 11. During the Asian crisis, Hong Kong and China successfully intervened (by raising their interest rates) to protect their local currencies from depreciating. Nevertheless, these countries were also adversely affected by the Asian crisis. Why do you think the actions to protect the values of their currencies affected these countries’ economies. Why do you think the weakness of other Asian currencies against the dollar and the stability of the Chinese and Hong Kong currencies against the dollar adversely affected their economies? Case Questions..
  • 22. 12. Why do you think the values of bonds issued by Asian governments declined during the Asian crisis? Why do you think the values of Latin American bonds declined in response to the Asian crisis? 13. Why do you think the depreciation of the Asian currencies adversely affected U.S. firms? (There are at least three reasons, each related to a different type of exposure of some U.S. firms to exchange rate risk.) 14. During the Asian crisis, the currencies of many Asian countries declined even though their governments attempted to intervene with direct intervention or by raising interest rates. Given that the abrupt depreciation of the currencies was attributed to an abrupt outflow of funds in the financial markets, what alternative Asian government action might have been more successful in preventing a substantial decline in the currencies’ values? Are there any possible adverse effects of your proposed solution? Case Questions..

Notes de l'éditeur

  1. East Asia was a booming part of the world. With high rates of saving and investment; rapidly improving educational levels among the work force; and if not free trade, at least a high degree of openness to and integration with world markets. Capital Market liberalizations 1900s, increased financial transactions through the banks. Shift from an inward-looking, import-substitution development strategy to one that emphasized exports. During the 1990s: massive capital inflows were accumulated progressively along with a high interest rate differential and under fixed exchange rate regime, including capital account deregulation
  2. Although the capital markets were liberalized, the financial sector was poorly managed and underdeveloped. The circumstances worsened through short-term borrowing abroad, primarily to finance long-term projects, leading to currency and maturity mismatches. As a result, a balance-sheet crisis occurred due to sudden capital outflows. The foreign short-term liabilities had exceeded international reserves in 1996. As soon as the baht was floated, foreign debt in local currency overshot, the sovereign rate of Thailand decreased, and then investors’ sentiments were adversely affected. The banks held many short-term liabilities denominated in foreign currencies, and the sharp increase in the value of the liabilities after the devaluation led to a further deterioration in the banks’ balance sheet. In all this, the IMF stepped in and the countries were able to prevent a bank panic by the cushion in aid provided that protected depositors. In all the ability of the bank to lend was sharply reduced. The cost of the bailout for the banking system was more than 15% of GDP in these countries and more than 50% of GDP in Indonesia, about 13% in Philippines. Liquidity crunch from capital flight
  3. Thailand: real estate bubble burst, then the stock market tumbled. It began with a currency crisis even though the nations had weaknesses that only worsened the crisis. George Soros bets on the baht- speculation about a devaluation let to an accelerating loss of foreign reserves. This leads to the speculation against neighboring country currencies- Malaysia, Indonesia and Korea. Crisis worsened by the economic slump in Japan. The economies were highly dependent on trade, partly from the fact that domestic banks and companies had large debts denominated in dollars. Faced with the dilemma that allowing their currencies to drop would raise import prices, leading to inflation As a counterpart to the large capital inflows several of the Asian countries began running large current account deficits
  4. South Korea was the world’s 8 th largest economy, and one of the strongest. But as it had failed to deal with its banking problems, and the market knew that its banks were wea
  5. January 12: Asia’s largest private investment bank, the Hong Kong- based Peregrine Investments, files for liquidation. The company is left badly exposed from its loan in investments in Indonesia. June: Japan and the US spend some $6 billion to buy yen in order to strengthen it. IMF’s efforts of advice on tighter fiscal and monetary policies were intended to stem the capital outflow but actually caused bankruptcies and killed the growth that was essential for private sector recovery.
  6. Drop in currencies make exports attractive but imports more expensive. The east Asian countries were highly dependent on trade. Also domestic banks and companies had large debts denominated in dollars. So a drop in the domestic currency means foreign currency becomes more expensive, relatively increasing the value of the dollar denominated debts even though the debts are the same. The huge influx of foreign capital happened with the market liberalization. The differential in interest rates played in favor of the domestic market and investor began to spend more and more in these economies.
  7. lack of supervision by bank regulators and lack of expertise in screening and monitoring borrowers at banking institutions, losses on the loans began to mount ( An estimated 15% to 35% of all bank loans turned sour in Thailand, Indonesia, Malaysia, and south Korea), causing an erosion of bank’s net worth (capital). As a result of this erosion, banks had fewer resources to lend and this lack of lending eventually led to a contraction in economic activity. Corruption..close ties between business interests and government officials appear to have helped foster considerable moral hazard in lending. All wanted financial liberalization but lacked proper government supervision. Heavy reliance on banks due to underdeveloped capital markets Pegged exchange rate made the adjustment process more difficult