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South East Asian Crisis,1997

Presented By:Ankit Purohit

Bhawana BothraBharat TalwarNikhil NarangJasleen Setia

Tanya Sharma

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Thailand During 1985-96 Average annual growth rate

of 9%.

Baht was pegged at 25 US$

May97 - Thai Baht was hit by massivespeculative attack

June97 - Prime Minister refused to devaluate

the Baht

Thai Government failed to defend the Baht

against International speculators

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Thailand Stock market declines by 7% and political

instability

Finance Minister Resigns

Further decline as economy contracts Stock market dropped 75% Finance one

collapsed

Baht reached 56 US$

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But lets begin from thebeginning. Between 1991 and 1997, $94.1 billiondollars flowed in East Asia Income per capita averaged $11,100 Factors that fuelled such growthincluded: Export promotion Lowered trade barriers Industrial policy High Interest rate

http://images.google.com/imgres?imgurl=http://www.monety.banknoty.pl/banknotes/malaysia/MalaysiaP44-100Ringgit-(1999)-donatedth_f.jpg&imgrefurl=http://www.imeem.com/miszyaya/blogs/2007/09/24/1dvGE_pW/ringgit-aka-rm&usg=__mMHmVvR2XrYDkVRvFLNIWlriP1o=&h=383&w=750&sz=83&hl=en&start=1&tbnid=Ig5pxQn7gNfD5M:&tbnh=72&tbnw=141&prev=/images?q=ringgit&gbv=2&hl=enhttp://upload.wikimedia.org/wikipedia/en/archive/3/3c/20090321092934!Php_bill_500_front.jpghttp://images.google.com/imgres?imgurl=http://aes.iupui.edu/rwise/banknotes/thailand/ThailandP63-1Baht-(1948)-donateddeenz_f.jpg&imgrefurl=http://aes.iupui.edu/rwise/countries/Thailand.html&usg=__-d9ncvztt3ESZ1IEg5_fzJGfBuE=&h=386&w=654&sz=87&hl=en&start=11&tbnid=uU_RuNolSQL60M:&tbnh=81&tbnw=138&prev=/images?q=baht&gbv=2&hl=en

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And the story continues... Foreign Capital Inflows:

US in recession -> Low interest rates 50% of capital inflows in Asia Dramatic run-up in Asset prices

Pegged Currencies Encouraged external borrowing

High exports driving rapid economicgrowth Export to GDP ratio grew from 35% to 55%

Excessive exposure to forexmovements

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The Climax.... Bubble burst Asset prices fall Companies start to default Money Lenders panic Credit crunch and bankruptcies Depreciative pressure on exchange rates Government buys excess domestic currency tomaintain peg Exhaust foreign reserves Currencies float and drastically deprciate Foreign currency-denominated liabilities grewsubstantially (in domestic currency terms) More bankruptcies Further deepening of the crisis

The bubble burst

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Consequences....... Countries hit included: Thailand Indonesia South Korea Philippines Malaysia Hong Kong Singapore Taiwan China

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Consequences.......Indonesia Drastic devaluation of the rupiah: from 2,000 to18,000 for 1 US$ High Inflation Stock market at its historic lowest Loans became costly Widespread rioting in Jakarta 500 deaths 16 commercial banks close Governor, Bank Indonesia Sacked President steps down after 30 years in power

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Consequences.......South Korea Won depreciates from 1,000 to 1,700 for 1 US$ Moodys credit rating of country drops A1 toB2 National Debt-to-GDP ratio doubled Excessive debt lead to takeovers Major setback in automobile sector

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Consequences.......Similar stories in Philippines,Japan, Malaysia Stock prices fall Interest rates jump Companies go bankrupt GDP rates slow down

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The Saviour.....IMF Liquidity infusion by IMF Cutting back of Government spending by theaffected nations Change from a Fixed Foreign Exchange rate to aFloating Foreign Exchange rate Focus on domestic consumption Reforms in banking sector controlled and welleducated lending Some amount of debt to be absorbed by banks

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And the story End....Thailands Fate IMF unveiled a $17 billion rescue package, andanother bailout package of $3.9 billion subject toconditionality for reorganizing and restructuring,establishing strong regulatory frameworks Tax revenue balanced the budget in 2004, 4years ahead of schedule Baht reached 33/US$ by 2007

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