Presentation Description

No description available.


Presentation Transcript


Introduction A period of financial crisis – Beginning July 1997 Started in Thailand Floating the pegged currency Real estate driven financial problems Excessive foreign exposure Resulting collapse of the Thai Baht Also affected Indonesia, South Korea, Hong Kong, Malaysia, Phillipines .


Overview The Asian Miracle (pre-crisis scenario) IN 1980 -1990 THERE WAS RAPID GROWTH What happened in Thailand, Indonesia South Korea, Philippines, Malaysia Consequences

Countries involved..:

Countries involved.. Thailand Philippines Hong Kong Singapore South Korea Malaysia Indonesia

Reasons for the Currency Crisis:

Reasons for the Currency Crisis Decline in Export Earnings Excessive and Risky Investment Current Account Deficit Property market bubble

PowerPoint Presentation:



MALAYSIA Malyasian ringgit declined against dollar even outlaw short selling on stock market gad negative impact. Malaysia’s government deferred spending and also stated that it will not bail out any corporations. Declined to IMF rescue package. G overnment raised interest rates to support the weakening currency.


SOUTH KOREA The Korean debt problem started when one of the chaebol , Hanbo collapsed. Kia , Korea’s third largest car company, ran out of cash and Jinaro , Korea’s largest liquor group, filed for bankruptcy. Standard & Poor’s, immediately downgraded Korea’s debt which resulted in stock market to plunge and short term interest rates to rise The wave of bankruptcies continued among the chaebol . IMF extended a loan of 55 $billion dollar to korea


Thailand Building boom Baht depreciation Massive layoffs Finance one – bankruptcy Stock markets drop by 75%


Indonesia Corny capitalism Severe attack on Indonesian rupiah Jakarta stock exchange hits all time low Debt credit rating of country to “junk bond” status Resignation of the president Suharto

Role of Japan:

Role of Japan Late 1980- Single largest source of FDI in Asian countries (6.5 billion $ to 11.1 billion $) Form of soft loans, export credit, Yen denominated debt 1985-97 - 40% of total O/s international bank funding to asia Events shaking Japans Confidence 17 Jan- Earthquake struck kobe 19 april - Yen appreciated to 80 and started depriciating 1995-97 devastating effect on banks (CAR reduced to 8%) Japanese bank loans dropped 27% after 1995 onwards



Singapore govt. response:

Singapore govt. response Measures (1998- 2000) objectives : lower business costs & relief- individuals ,households. 1998 budget- Lower business costs 15 % property tax rebate- commercial and industrial properties, Property tax exemption removal of stamp duty Individuals and households 5% personal income tax rebate, Rebates - service & conservancy charges & rentals on Housing and Development Board flats . Government package - off-budget measures in June 1998 worth S$2 billion. November 1998, as Singapore slipped into recession, 10-percentage-point cut in the employers' Central Provident Fund contribution rate 10 % corporate tax rebate, a 5-8% wage reduction, cuts in wide range of government rentals, rates and fees . First quarter of 1999 , economy - positive growth, sustained GDP for 1999 grew by 7.2%, (Forecast +/-1%)

Hong Kong:

Hong Kong October 1997-  Hong Kong dollar, pegged at 7.8 to U.S . dollar since 1983, speculative pressure Inflation rate significantly higher than the U.S.'s for years . Monetary authorities - more than US$1 billion (defend local currency) More than US$80 billion - foreign reserves, managed to maintain the peg. Stock markets – most volatile (20 - 23 October-  Hang Seng Index  -23%) 15 August 1998 - Hong Kong Monetary Authority, overnight interest rates - 8% to 23%, Speculators took advantage - unique currency-board system, (overnight rates automatically increase in proportion to large net sales of the local currency) Rate hike- increased downward pressure on the stock market, speculators - profit by short selling shares. HKMA – buying shares of the Hang Seng Index in mid-August . Government Bought approximately HK$120 billion (US$15 billion) worth of shares in various companies, largest shareholder govt. (e.g., the government owned 10% of HSBC) at the end of August 1999 , the Government started selling shares - profit of about HK$30 billion (US$4 billion) by Tracker Fund of Hong Kong ,.


HONG KONG Small and open economy Real GDP contracted by 5.5% in 1998, six consecutive years of deflation, nominal GDP in Hong Kong did not overtake - 2005. Growth in the first five years after crisis - volatile Recently strong economic growth, real GDP growing at average of 7.7% (2004-06). Reason - Booming trade with China (re-export trade, container port, air cargo traffic) Looser travel restrictions boosted Hong Kong's hotel, restaurant and retail sectors . Listing of Chinese companies ( three of China's "Big Four" state-owned banks) in past two years, boosted financial-services sector. Hong Kong more vulnerable to a slowdown in Chinese growth.



After Effects:

After Effects On Asia :- sharp reductions in values of currencies, S tock Market and other asset prices of several countries. This created grave doubts on the credibility of IMF The economic crisis also led to a political upheaval, most notably culminating in the resignations of President  Suharto  in Indonesia and Prime Minister General Chavalith Yongchaiyudh  in Thailand Outside Asia :- After the Asian crisis, international investors were reluctant to lend to developing countries, leading to economic slowdowns in developing countries . The powerful negative shock also sharply reduced the price of oil The reduction in oil revenue also contributed to the  1998 Russian financial crisis , which in turn caused  Long-Term Capital Management in the United States to collapse

Implication of IMF Intervention:

Implication of IMF Intervention Recovery from crisis based on international support, particularly IMF. IMF provided financial support to Indonesia, Korea and Thailand. Main components of this support were, ‘Financing’, ‘Macro-economic policies’ and ‘Structural Reforms’.

Crisis’s Implications over Exchange Rate Policies :

Crisis’s Implications over Exchange Rate Policies Limitations of managed float system exposed. Lessons learned from Hong Kong. The currency board system. De-linking of east asian currencies from the US dollar took place. In post-crisis period, affected countries moved to de facto “free” float regime..

Thank You :

Thank You

authorStream Live Help