South East Asian Crisis
September 10, 2011
September 10, 2011
Report
Report
South East Asian Crisis
South East Asian Crisis
INTRODUCTION
The South East Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion. The crisis started in Thailand with the financial collapse of the Thai Baht caused by the decision of the Thai government to float the Baht, cutting its peg to the USD, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt. Though there has been general agreement on the existence of a crisis and its consequences, the exact reasons of this financial crisis are still debatable.
South East Asian economies had maintained high interest rate which promised high return rate for foreign investors looking for investment. Regional economies Thailand, Malaysia, Indonesia, Singapore and South Korea experienced 8-12% GDP growth in the late 1980s and early 1990s. US $184 billion entered in the developing countries during 1994-96 according to the Bank of International Settlements. In the first half of 1997 $70 billion came in but in 2nd half of 1997 (Onset of crisis) this inflow suddenly turned into outflow of US $102 Billion, creating a wide spread panic among the investors and governments alike.
Key Drivers of South East Asian Crisis:
Economists believe that the South East Asian crisis which mainly affected Thailand, Indonesia & South Korea was created not by market psychology, but by policies that distorted incentives within the lender-borrower relationship. *
September 10, 2011
Report
Report
South East Asian Crisis
South East Asian Crisis
INTRODUCTION
The South East Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion. The crisis started in Thailand with the financial collapse of the Thai Baht caused by the decision of the Thai government to float the Baht, cutting its peg to the USD, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt. Though there has been general agreement on the existence of a crisis and its consequences, the exact reasons of this financial crisis are still debatable.
South East Asian economies had maintained high interest rate which promised high return rate for foreign investors looking for investment. Regional economies Thailand, Malaysia, Indonesia, Singapore and South Korea experienced 8-12% GDP growth in the late 1980s and early 1990s. US $184 billion entered in the developing countries during 1994-96 according to the Bank of International Settlements. In the first half of 1997 $70 billion came in but in 2nd half of 1997 (Onset of crisis) this inflow suddenly turned into outflow of US $102 Billion, creating a wide spread panic among the investors and governments alike.
Key Drivers of South East Asian Crisis:
Economists believe that the South East Asian crisis which mainly affected Thailand, Indonesia & South Korea was created not by market psychology, but by policies that distorted incentives within the lender-borrower relationship. *
References: 1. http://en.wikipedia.org/wiki/1997_Asian_financial_crisis 2. http://www.un.org/esa/policy/pastmeetings/degefe.pdf 3. http://mostlyeconomics.wordpress.com/2010/07/19/fiscal-austerity-lessons-from-south-east-asian-crisis-dont-do-it/ 4. http://www.slideshare.net/pujil2009/what-is-south-east-asian-currency-crisis 5. http://www.thecsem.org/content/south-east-asian-crisis 6. http://www.thirdworldtraveler.com/Economics/LearningSEAsiaCrisis_DS.html 7. http://www.tradingeconomics.com/ *********************