THE 1997 ASIAN FINANCIAL CRISIS (ASIAN CONTAGION)

In 1997, the Asian Countries experience

financial crisis or Financial Crisis of 1997 also
called “Asian Contagion”. It affects the southeast
Asian countries which includes Thailand, South
Korea, Indonesia which are the most affected
when the crisis happened in the said year. The
other countries that were affected are the
Singapore, Malaysia and Philippines. The rest of
the countries were less affected, however they
were also hurt and suffered loss of demands. It
made a substantial effect on the economy of all
the Asian Countries.

The crisis was said to begin or started in Thailand wherein their currency baht
collapsed in July, 1997 and it had a fixed exchange rate to support its peg to the value
of their currency to the US Dollar. But, in July, the Government was forced to float Baht
due to speculative attacks on the currency. At that time, Thailand also acquired a huge
foreign debt that caused it to go bankrupt. Its currency’s value decreases and the stock
market collapsed. It simply shows that the market currency fails first in Thailand.

This declining of market currency spread rapidly like a wildfire throughout the
Southeast Asian countries and had caused the economy as a whole to fall down; and in
turn causing stock market decline, a decrease in import revenue and a government
upheaval.

In the first 6 months of the year 1997, the currency market of the countries
declined as shown in the graph; based on this graph, the value of Indonesian Rupiah
declined by 80%, Thai baht by more than 50 percent; the South Korean won by nearly
50 percent, and the Malaysian ringgit by 45 percent. Collectively, the economies most
affected saw a drop in capital inflows of more than $100 billion in the first year of the
crisis. Significant in terms of both its magnitude and its scope, the Asian financial crisis
became a global crisis when it spread to the Russian and Brazilian economies.

Prior to the crisis, these

countries showed impressive growth rates and foreign capital inflows and were known
as ‘tiger economies.’ It led to a rise in foreign debt. Because of the large capital inflows,
the asset prices in these countries inflated. There was a boom in the real estate,
corporate sector, and the stock market. It was an ‘economic bubble’ that had to burst at
some point.

There were several causes in the 1997 Asian Financial Crisis. One of which is
the outflow of the foreign capital inflow also called the “hot money” that led the
economic bubble to burst. This is after the collapsed of the Thailand’s Currency Baht.
This result to the decrease of the prices of assets and those who are invested in them
went bankrupt. It was also because the government became dependent on the stable
exchange rate and high profit and it lacks control over the borrowers.

Moreover, of all other involved Asian Countries, Indonesia was the hardest-hit
country by the crisis and the worst affected by it as it has the biggest decreased
exchange rate. And because it didn’t only affect the economic state of the country, it
also had significant and far-reaching political and social implications.
 When pressures on the Indonesian rupiah became too strong, the currency was
set to float freely starting from August 1997. Soon it began depreciating significantly. By
January 1998, the rupiah's nominal value was only 30 percent of what it had been in
June 1997. In the years prior to 1997 many private Indonesian companies had obtained
unmerged, short-term offshore loans in US dollars, and this enormous private-sector
debt turned out to be a time bomb waiting to explode.

The Indonesian economy collapsed in the second phase of the Financial Crisis
due to the sudden lack of confidence of its foreign investors who suddenly started
pulling out their investments. As the government of Indonesia was unable to cope with
this crisis it decided to seek financial assistance from the International Monetary Fund
(IMF) in October 1997.

During the crisis, the market prices tripled that it no longer affordable for the
Indonesian people and several businesses shut down. An estimated of 7 million people
in Indonesia suffered in severe food shortages and hunger brought by the collapsed of
the country’s economy. Indeed, this event was a massive crisis.

The crisis lasts for about 2 years. At the present, Indonesian economy is going
well and it made a prudent financial measure to prevent the same event from happening
again. Furthermore, this Asian contagion gave the Asian countries a lot of lessons. It
helped them enhance their integration through regional cooperation. And each of them
are playing a vital role in strengthening the communication and coordination among
Asian countries, to make sure that no country is fighting alone. And the nations are
working as united community in solving different challenges.

REFERECES:
http://economyria.com/1997-asian-financial-crisis-explained/#:~:text=The
%201997%20Asian%20Financial%20Crisis%20was%20the%20crisis%20that,Asian
%20countries%20in%20July%201997.&text=But%2C%20in%20July%2C%20the
%20Government,and%20the%20stock%20market%20tumbled.

https://prezi.com/p/v3f_csa0h1fp/asian-financial-crisis-1997/

https://www.indonesia-investments.com/culture/economy/asian-financial-
crisis/item246#:~:text=Asian%20Financial%20Crisis%20in%20Indonesia,the
%20country's%20foreign%20exchange%20reserves.

http://factsanddetails.com/indonesia/History_and_Religion/sub6_1c/entry-3962.html

https://news.cgtn.com/news/3d55544d7a457a4d/share_p.html