South-East-Asian-Crisis

SOUTH EAST ASIAN CRISIS : 

SOUTH EAST ASIAN CRISIS ANURAG SINHA B.A. Economics (Hons.) II Year, Delhi College of Arts and Commerce, University of Delhi 1

INTRODUCTION : 

The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. FINANCIAL crises were associated with Banking panics Stock market crashes Recessions Bubbles, currency crises INTRODUCTION 2

ASEAN Member States : 

Brunei Darussalam Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam ASEAN Member States 3

BEFORE THE CRISES : 

From 1985 to 1996, growth rate averaging almost 9% annually- increased pressure on Thailand's currency, the baht. From 1985 until July 1977, baht was pegged at 25 us $. BEFORE THE CRISES 4

ASEAN COUNTRIES : 

gripped much of Asian from July 1997, and raised fears of a worldwide economic meltdown due to financial contagion Primary casualty : Thailand, Indonesia, south Korea. Fairly hurt: Hong Kong, Malaysia, Laos and Philippines Most Asian countries currencies fall significantly ASEAN COUNTRIES 5

CAUSES FOR CRISIS : 

Fixed exchange rate system pegged to the USD. Decline in export –particularly electrical goods Export - Trade and currency account deficit Crisis 1st emerged in Thailand when as a crisis of loan repayment Pressure on forex reserves and the value of baht. Contagion then spread to Philippines, Malaysia and Indonesia CAUSES FOR CRISIS 6

CONT.. : 

Weakness of macro- economic fundamentals Over valued exchange rate Openness of capital account Decline in the value of the currency CONT.. 7

What happened in Thailand… : 

Mid – may ‘97: Thai Baht was hit by massive speculative attack Spark: End-June ‘97, Thai prime minister declared that he would not devaluate the baht Thai government failed to defend the baht against international speculative Financial crisis hits……… What happened in Thailand… 8

What happened in Thailand : 

Booming Thai economy ground to halt, contacted by 1.9% Massive lay offs in finance , real state & construction: unemployment rate all time high Huge number of worker returning to their villages in the countryside and 600,000 foreign workers sent back Stock market dropped 75%, finance one collapsed Baht reached 56 us$ in Jan ‘98 What happened in Thailand 9

What happened in Indonesia : 

Drastic devaluation of the rupiah: from 2,000 to 18000 for 1 us$ Sharp price increase Wake of widespread rioting: 500 deaths in Jakarta alone Governor, bank Indonesia was sacked President Suharto was forced to stop down in may 1998 after 30 year in power. What happened in Indonesia 10

What happened in S. Korea : 

Drastic devaluation of the won: from 1,000 to 1,700 for1 us$ Credit rating of the country (Moody’s): A1 to B2 National debt to GDP ratio more than doubled Major setback in automobile industry What happened in S. Korea 11

What happened in Philippines : 

Growth dropped to virtually in 1998 Peso fall significantly, from 26/us$ to even 55/us$ President Joseph Estrada was forced to resign What happened in Philippines 12

What happened in Japan : 

40% of Japan’s export go to Asia, so it was affected even if the economy was strong Japanese Yen fall to 147 as mass selling began GDP real growth rate slowed from 5% to 1.6% Some companies went bankrupt Being world’s largest currency holder, Japan could bounce back quickly What happened in Japan 13

What happened in US… : 

Markets did not collapse, but were severely hit NYSE briefly suspended trading, for the first time Dow Jones industrial average suffered as 3rd biggest point losses ever Relationship with JAPAN changed forever: us stopped supporting the highly artificial trade environment and exchange rate. What happened in US… 14

What happened in India : 

The effect on the Asian crisis was felt in India. In January 1998, tare he rupee crossed the psychological level of Rs.40 per dollar. On the international trade front, the effect of the crisis depends upon two factors:- First:- The trade between Indian and south East Asian countries Second:- The export from the country for which the south East Asian countries competitors. What happened in India 15

IMPACT OF THE CRISIS : 

IMPACT OF THE CRISIS 16

PROPOSED SOLUTIONS : 

Stabilizing the exchange rate & debt management Dealing with the social impact Strengthening the financial sector Adjustment if industrial structure International financial market PROPOSED SOLUTIONS 17

Role of IMF : 

Provides $120 billion as bailout package Imposed restrictive condition Keep interest rate high Restrictive bank loans Severe liquidity problem More bankruptcies Local called the financial crisis “the IMF crisis” due to its controversial role The wall street treasury IMF complex Role of IMF 18

New development for long term investment : 

The progressive openness of ASEAN economics Sound financial measures The growing integration of the ASEAN economy The expansion and diversification of ASEAN New development for long term investment 19

Slide 20: 

Thank you 20