MIDTERM EXAMINATIONS GROUP ACTIVITY IN MICROECONOMICS

The Asian Financial Crisis of 1997

Members:
Buela, Justine Mae
Cabling, Clyde Justine
Casambros, Hannah Cathrina
Compuesto, Dimple Mae
Comighod, Kyle

Lecturer
Professor Ian Jasper Creencia, MBA

Part 1 - Research
How it started - Dimple
The Asian Financial Crisis also known as the Asian Contagion refers to the sequence
of currency devaluations in 1997. The crisis started in Thailand with the financial
collapse of the Thai baht after the Thai government was forced to float the baht due to
lack of foreign currency to support its currency peg to the U.S dollar. At the time,
Thailand 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.

July 2, 1997 - The Thai government ran out of foreign currency. No longer able to
support its exchange rate, the government was forced to float the Thai baht, which was
pegged to the U.S. dollar before.
-On the same day, the Thai baht was reduced by 17%.

July 18, 1997 - the Philippine peso and Indonesian rupiah underwent major
devaluations as well.

August 14, 1997 - The managed float exchange rate mechanism was replaced by a
free floating exchange rate mechanism, resulting in a drop in the Indonesian rupiah.

August 28, 1997 - Asian stock markets plunged to their multi-year lows.

October 23, 1997 - Hong Kong's stock index falls 10.4% after it raises bank lending
rates to 300% to fend off speculative attacks on the Hong Kong dollar. The plunge on
the Hong Kong Stock Exchange wipes $29.3 billion off the value of stock shares.
(Hongkong dollar and stock are under heavy pressure. The South Korean won begins to
weaken.

November 17, 1997- Bank of Korea allows won to drop. Allowing it to fall below 1000
against the dollar, a record low.

Why did it happen? - Kyle

The reasons for the Asian Financial Crisis are complex and contentious. The bursting of
the hot money bubble is seen as a primary factor. Many Southeast Asian nations,
including Thailand, Singapore, Malaysia, Indonesia, and South Korea, had an enormous
economic growth of 8% to 12% in the late 1980s and early 1990s (GDP). The
accomplishment was dubbed the "Asian economic miracle," but it came with a big
danger. Export expansion and foreign investment were key drivers of economic
development in the aforementioned nations. High-interest rates and fixed currency
exchange rates (pegged to the US dollar) were adopted to attract hot money.
Furthermore, the exchange rate was set at a beneficial level.

Who are the key people involved - Hannah

1. Malaysian Prime Minister, Mahathir Mohamad 1981 to 2003
 - He refused to go to the IMF and instead imposed strict capital controls
and a dollar peg of 3.8 ringgit.
- On July 24, 1997 He accused "rogue speculators" for Southeast Asia's
economic upheaval. He later singles out billionaire financier George Soros.
- It is fiercely disputed what role currency speculation played in the 1997
Asian currency crisis. The Malaysian Prime Minister Mahathir has accused
huge foreign investment funds, in particular hedge fund manager George
Soros, of attacking the ringgit and other currencies in the marketplace in
order to make money for themselves at the expense of Malaysians and
other locals. On September 20, 1997, Mahathir stated that currency
trading (other than to fund commerce) was immoral and should be
abolished during a conference of the International Monetary Fund in Hong
Kong. He chastised the traders for the depreciation of the ringgit and the
consequent decline in Malaysia's (dollar-denominated) per capita income
(TAN, 2018).
2. George Soros
- George Soros took out forward contracts to exchange Baht into dollars at
the rate of 26 baht per dollar in January 1998. Soros advertised
Thailand's problems and sold all of his baht. Thailand defended the baht
by buying up the surplus baht.
- When Thailand started to run out of dollars, the baht was floated on July
2, 1997. The Baht fell from 1$ for 25 baht in June 1997 to 1$ for 54 baht
in January 1998. Soros traded 1 billion dollars for 54 billion baht on the
spot market; he then used his forward contracts to change the 54 billion
baht into 2 billion dollars – doubling his money (Leightner, n.d.).
3. Bill Clinton
- The Clinton-Gore Administration led a global effort to re-capitalize the
International Monetary Fund to allow it to more effectively deal with these
problems. President Clinton also insisted that the G-7 develop a set of
measures to restore confidence in the world financial system ( The Clinton
Presidency: Historic Economic Growth, n.d.).
- On July 10, 1998, He called on the IMF to quickly conclude negotiations
over emergency loans for Russia after getting a call for help from Boris
Yeltsin, sparking a rally in Moscow's markets.
4. Michel Camdessus - IMF’s Managing Director
- He helped to solve the Asian financial crisis by providing loans to stabilize
the Asian economies—also known as “tiger economies”—that were
affected.
5. World bank
- The International Monetary Fund (IMF) and the World Bank developed
structural adjustment programs for Thailand, Indonesia and South Korea,
all of which have developed the frameworks required for the disposal of
bad loans. The IMF and the World Bank work within an international
 framework to stabilize the financial systems of member economies (Scott,
n.d.).
6. President Suharto of Indonesia
- On January 8 1998 President Suharto unveiled his state budget plan.
Critics say that the unrealistic budget does not comply with the IMF's
reform program.
- On January 10 1998 Suharto postponed 15 major government-
subsidized projects--a number of them linked to members of the Suharto
family--to help cut expenditures and foreign debt.
- January 15 1998 Suharto signs a new loan deal with the IMF agreeing
to eliminate the country's monopolies and state subsidies.
- On April 8, 1998 Indonesia and the IMF reached a third pact in six
months for a bailout. Both sides make concessions: the IMF withdraws its
mandate that the government dismantle its subsidies of food and fuel,
Suharto agrees to close more insolvent banks.
- On May 21, 1998 Suharto resigned after 32 years in power since student
protests denounced the Suharto administration for its failed economic
policies and demanded extensive political reforms.
7. Russian Prime Minister Sergei Kirienko
- On June 24, 1998 He submitted a budget austerity plan to the IMF,
which released a previously held loan installment of $670 million.
8. Group of seven (G-7)
- On October 3 1998, the ministers created a rescue plan for Brazil.
9. Russian President Boris Yeltsin
- On March 23, 1998, He abruptly dismissed his entire cabinet, including
Prime Minister Viktor Chernomyrdin. Yeltsin appoints Energy Minister
Sergei Kirienko as acting premier.
- On July 19, 1998, he vetoed tax cuts approved by parliament and issued
decrees imposing a 3% tax on imports and quadrupling land taxes to
close the budget deficit and secure IMF loans. He also pledges renewed
efforts to collect taxes.
- On August 14, 1998, he called for an emergency session of parliament
and declared that "there will be no devaluation" of the ruble.
- On August 24, 1998, he dismissed Kirienko and named Viktor
Chernomyrdin as prime minister.
10. Brazil's President Fernando Cardoso
- On October 27, 1998, He announced an austerity plan of $80 billion in
tax increases and spending cuts over three years in order to secure an
IMF assistance package.

Who are the Countries Involved? - Justine

Thailand was the first nation afflicted by the financial crisis, and it then extended to
some of the other most severely affected nations, and the other countries.

Thailand - Thailand's economy increased at a rate of nearly 9% year from 1985 to

1996, which was the highest economic growth rate of any nation at the time. Within a
range of 3.5% and 4.7%, inflation was kept fairly low. The baht was set at 25 to the US
dollar.

South Korea - the development of financial markets, institutions, and policy frameworks
in the Korean economy in the 20 years following the Asian Financial Crisis of 1997, and
evaluate their efficacy in lowering the probability and damaging consequences of future
financial crises. After experiencing a currency and banking crisis in November 1997,
Korea was forced to turn to the IMF for governmental help.

Indonesia - The East Asian financial crisis has significantly slowed Indonesia's progress.
Growth dropped to 4.9% in 1997 from 8.2% in 1995 and 7.8% in 1996, the year before
the crisis. But the increase was still favorable, at least through 1997. To regain market
confidence in the Indonesian rupiah, the IMF landed in Indonesia with a bailout plan
worth USD billion.

Hongkong - Hong Kong's economy experienced high deflation after experiencing strong
inflation in the early 1990s. Rents, earnings, and the costs of goods and real estate
have all decreased over the last five years. Investors as well as the government were
caught off guard. Prices for residential properties have dropped by 65%.

Laos - The economy of Laos is in ruins. Basic good prices are soaring, staples like
cooking oil are getting harder to find, and the local currency is plummeting against the
US dollar. When Laos began to recover in 1988, the IMF started lending money to help
the economies of Asia become more stable.

Malaysia - Malaysia saw a significant depreciation of the ringgit and significant capital
flight during the Asian financial crisis. The ringgit's value was set by the government at
RM3 in order to stop this flight of capital and depreciation. The Malaysian government
made the decision not to take out an IMF loan. Instead, to address financial issues
brought on by the "contagion effect" of the Asian economic crisis, the government
enacted capital controls.

Philippines - The Philippines displayed a number of signs of the crisis, including an

increase in short-term capital, primarily in the form of portfolio investments, compared
to flows of foreign direct investments, a bubble in the economy as evidenced by
excessive stock market trading, as well as price inflation for real estate.
China - The Chinese currency, the RMB, was linked to the US dollar in 1994 at an
exchange rate of 8.3 RMB to the USD. After largely avoiding the conflict in 1997–1998,
there was a lot of speculation in the Western press that China would soon be forced to
devalue its currency in order to maintain its exports' competitiveness against those of
the ASEAN countries, whose exports became more expensive in comparison to China's.

Singapore - Singapore was indirectly affected, but it had a significant influence. In

numerous industries, growth decreased between 1997 and 1998. In 1998, the
manufacturing sector saw a contraction of 0.5 percent after seeing 4.5 percent
expansion the year before. From a growth rate of 15% in 1997, the construction
industry's growth rate dropped to 3.9% in 2008.

Japan - Japan, whose economy is particularly significant in the area, has also been
under strain as a result of the crisis. As a result of Japan's economy being more than
twice as large as all of Asia combined and the fact that 40% of its exports are to Asia,
Asian nations often have a trade imbalance with Japan.

United States - It dropped 12% throughout the crisis. The crisis caused consumer and
spending confidence to decline (see 27 October 1997 mini crash). However, the
economy did quite well in 1998 as well, expanding at a very strong 4.5% for the entire
year.

Role of IMF to financial crisis - Clyde

Role of International Monetary Fund (IMF) to Financial Crisis (According to
the IMF)
● is an international organization that promotes global monetary cooperation and
international trades, reduces poverty, and supports financial stability.

● In Asian countries like Thailand, Indonesia, and South Korea, they are on the
verge of failing their currencies. They initiated several package assistance for the
most affected countries during the financial crisis. They provided packages of
around $20 billion to Thailand, $40 billion to Indonesia, and $59 billion to South
Korea to support them, so they do not fail.

● acts as a monitor of the world’s currencies, by the means of monitoring, they

give advice and assistance for those countries who have received packages.
Examples of the advice are reducing government spending, failing financial
institutions that cannot pay their debts, and raising interest rates aggressively to
be able to help fight inflation and to get price growth under control.
 References

(n.d.). The Asian Economic Crisis and Financial Reforms. Retrieved September

16, 2022, from

https://www.jri.co.jp/english/periodical/rim/2002/RIMe200212crisis/

About the IMF. (n.d.). International Monetary Fund. Retrieved September 28,

2022, from https://www.imf.org/en/About

About the IMF. (n.d.). International Monetary Fund. Retrieved September 28,

2022, from https://www.imf.org/en/About

Asian Financial Crisis - Overview, Causes, and Impact. (2022, May 1). Corporate

Finance Institute. Retrieved September 28, 2022, from

https://corporatefinanceinstitute.com/resources/knowledge/finance/asian-

financial-crisis/

The Clinton Presidency: Historic Economic Growth. (n.d.). The White House.

Retrieved September 16, 2022, from

https://clintonwhitehouse5.archives.gov/WH/Accomplishments/eightyears-

03.htm

Leightner, J. E. (n.d.). Lessons From Thailand's 1997 Financial Crisis for the

Current Global Economy. Valdosta State University. Retrieved September 16,

2022, from https://www.valdosta.edu/academics/international-programs/asia-

council/documents/thai-crisis.pdf
 Lessons From Thailand's 1997 Financial Crisis for the Current Global Economy .

(n.d.). Valdosta State University. Retrieved September 16, 2022, from

https://www.valdosta.edu/academics/international-programs/asia-council/

documents/thai-crisis.pdf

Lowe, P. (2007, July 18). The Asian Crisis: A Retrospective | Speeches | RBA.

Reserve Bank of Australia. Retrieved September 28, 2022, from

https://www.rba.gov.au/speeches/2007/sp-gov-180707.html

Scott, G. (n.d.). Asian Financial Crisis Definition. Investopedia. Retrieved

September 16, 2022, from https://www.investopedia.com/terms/a/asian-

financial-crisis.asp

TAN, C. (2018, May 10). Mahathir Mohamad, financial crisis survivor, pulls off

another surprise. Nikkei Asia. Retrieved September 16, 2022, from

https://asia.nikkei.com/Politics/Mahathir-Mohamad/Mahathir-Mohamad-financial-

crisis-survivor-pulls-off-another-surprise

Timeline Of The Crash | The Crash | FRONTLINE. (n.d.). PBS. Retrieved

September 16, 2022, from

https://www.pbs.org/wgbh/pages/frontline/shows/crash/etc/cron.html

PART 2 - Script / Flow of the Video

Intro clip
Hannah (studio news anchor): Good morning Luzon, Visayas, and Mindanao. I am
Hannah Cathrina Q. Casambros, your anchor on ECN News, brings you the best of all
your economic news and for today, September 00 2022, I bring to you the best news
for this day. For the headlines (insert clips) Thailand experienced the beginning of the
Asian Financial Crisis in 1997 when the hot money bubble burst. Thailand was the first
nation affected by the financial crisis, and it then extended to some of the other most
severely affected nations, South Korea and Indonesia. The crisis also had an impact on
Malaysia, the Philippines, Hong Kong, and Laos. Although they were less impacted by
the crisis, Brunei, China, Singapore, Taiwan, and Vietnam still suffered from a loss of
demand in their region. Japan was also impacted, though less severely, lastly The IMF
is the solution to the Asian Financial Crisis and this is ECN News.

Insert intro clip

Hannah: Asian Financial Crisis started in Thailand during 1997, here’s reporter Ms.
Dimple Mae Compuesto to give us the detailed happenings about the crisis.

Dimple: Dimple: Worst financial crisis is a nightmare in Southeast Asian countries.

Citizens, politicians, and businesses were the victims of it. Many considered July 2 as
today where everything started. At this time, the Thai government was forced to float
the baht due to lack of foreign currency to support its currency pegged to the US dollar.
On the same day, the value of Thai baht dropped by as much as 50%. However, it said
that Thailand had accumulated a burden of foreign debt that made the country
effectively bankrupt.
It is a matter of time before currency devaluation sweeps across Asia (including),
Indonesia, Hongkong, South Korea, Philippines, Malaysia, and China. The Philippine
peso depreciated by almost 40%, the Indonesian rupee downed by 80%, the South
Korean won has downed by 50%, and the Malaysian ringgit by 45%.
During 1997, stock markets of Asian countries plunged in continous to fall. Within 1
year, business collapsed, the economy failed, and riots erupted that raised fear to the
Southeast Asian countries. Government was under heavy pressure because
international investors had become less willing to invest, GDPs had dropped by double
digits. It is indeed shocking to know that everything is collapsing way back 25 years
ago.
This is Dimple Mae Compuesto reporting, back to you Ms. Hannah.

Hannah: Thank you, Ms. Dimple. Knowing how the problem began has led us to ask,
"What is the origin of this crisis?" Mr. Kyle Comighod is here to provide the missing
information on this crisis that we are interested in.

Kyle: The reasons for the Asian financial crisis were complex and contagious. The
(bursit?) of hot money bubble is seen as a primary factor. Many southeast asian
countries including Thailand, Malaysia, Indonesia, and South Korea had an enormous
economic growth of 8-12% in the late 1980s and early 1990s. Their accomplishment
was (dubbed?) the Asian economy (nerf?). However, it came with a big problem.
Export expansion and foreign investments were key drivers of economic
development of the aforementioned nations. High interest rates and fixed currency
exchange rates were adopted to attract hot money. However, the exchange rate was
set at a beneficial level.
My name is Kyle Comighod, your news reporter for tonight. Back to you Hannah.

Hannah: Thank you, Mr. Kyle. The financial crisis first hit Thailand, and it then spread
to some other countries that were most seriously affected. And here with us is Ms.
Justine Mae Buela to report on the nations that are affected by this Asian Financial
Crisis.

Atine: Thailand was the first nation afflicted by the financial crisis, and it then extended
to some of the other most severely affected nations, and the other countries.
Thailand's economy increased at a rate of nearly 9% year from 1985 to 1996, which
was the highest economic growth rate of any nation at the time. Within a range of
3.5% and 4.7%, inflation was kept fairly low. The baht was set at 25 to the US dollar.
South Korea developed financial markets, institutions, and policy frameworks in the
Korean economy the 20 years following the Asian Financial Crisis of 1997, and
evaluated their efficacy in lowering the probability and damaging consequences of
future financial crises.
Indonesia, the East Asian financial crisis has significantly slowed Indonesia's
progress. Growth dropped to 4.9% in 1997 from 8.2% in 1995 and 7.8% in 1996, the
year before crisis. But the increase was still favorable, at least through 1997. To regain
market confidence in the Indonesian rupiah, the IMF landed in Indonesia with a bailout
plan worth USD billion.
Hong Kong's economy experienced high deflation after experiencing strong inflation
in the early 1990s. Rents, earnings, and the costs of goods and real estate have all
decreased over the last five years. Investors as well as the government were caught off
guard. Prices for residential properties have dropped by 65%.
Laos. The economy of Laos is in ruins. Basic good prices are soaring, staples like
cooking oil are getting hard to find, and the local currency is plummeting against the US
dollar. When Laos began to recover in 1988, the IMF started lending money to help the
economies of Asia become more stable.
Malaysia saw a significant depreciation of the ringgit and significant capital flight
during the Asian financial crisis. The ringgit's value was set by the government at RM3
in order to stop this flight of capital and depreciation. The Malaysian government made
the decision not to take out the IMF loan. Instead, to address financial issues brought
on by the "contagion effect" of the Asian economic crisis, the government enacted
capital controls.
The Philippines displayed a number of signs of the crisis, including an increase in
short-term capital, primarily in the form of portfolio investments, compared to flows of
foreign direct investments, a bubble in the economy as evidenced by excessive stock
market trading, as well as price inflation for real estate.
The Chinese currency, the RMB, was linked to the US dollar in 1994 at an exchange
rate of 8.3 RMB to the USD. After largely avoiding the conflict in 1997–1998, there was
a lot of speculation in the Western press that China would soon be forced to devalue its
currency in order to maintain its exports' competitiveness against those of the ASEAN
countries, whose exports became more expensive in comparison to China.
Singapore was indirectly affected, but it had a significant influence. In numerous
industries, growth decreased between 1997 and 1998. In 1998, the manufacturing
sector saw a contraction of 0.5 percent after seeing 4.5 percent expansion the year
before. From a growth rate of 15% in 1997, the construction industry's growth rate
dropped to 3.9% in 2008.
Japan, whose economy is particularly significant in the area, has also been under
strain as a result of the crisis. As a result of Japan's economy being more than twice as
large as all of Asia combined and the fact that 40% of its exports are to Asia, Asian
nations often have a trade imbalance with Japan.
United States. It dropped 12% throughout the crisis. The crisis caused consumer
and spending confidence to decline, see 27 October 1997 mini crash. However, the
economy did quite well in 1998 as well, expanding at a very strong 4.5% for the entire
year.
This is me Justine Mae Buela, back to you Ms. Hannah.

Hannah: Thank you Ms. Buela. We currently have a lot of information about this crisis.
We now understand what happened, why it happened, and which nations were
affected. Therefore, we should be aware of how or who resolved this situation. IMF is
really popular with these countries, maybe some of you are wondering what IMF is. To
answer the questions that you have in mind, here with us, a representative from the
IMF, Mr. Clyde Justine Cabling.

Hannah: Good day Mr. Cabling and welcome to ECN News. For the first question, What
is the IMF?
Clyde: IMF or International Monetary Fund is an international organization that
promotes global monetary cooperation and international trades, reducing poverty, and
supporting financial stability. It was founded in July 1944 at Bretton Woods, New
Hampshire, United States.

Hannah: Most of the countries that were stated earlier are Asian Countries and they
suffer financially. What did the IMF do to have a solution to their problem?

Clyde: In Asian countries like Thailand, Indonesia, and South Korea, to name a few,
they are on the verge of failing their currencies. For them to not fail, the IMF initiated
several packages of assistance for the most affected countries during the financial
crisis. They provided packages of around $20 billion to Thailand, $40 billion to
Indonesia, and $59 billion to South Korea.
Well, the IMF acts as a monitor of the world’s currencies, by means of monitoring,
they give advice and assistance for those countries who have received packages.
Examples of the advice are reducing government spending, failing financial institutions
that they cannot pay their debts, and raising interest rates aggressively to be able to
help fight inflation and to get price growth under control.
Hannah: It was a pleasure, Mr. Cabling, thank you. I'd like to share some information
with you on the Asian Financial Crisis in my position as your news anchor. Please allow
me to introduce to you the key people that are involved in the mentioned crisis.
1. Malaysian Prime Minister, Mahathir Mohamad 1981 to 2003
2. George Soros
3. Bill Clinton
4. Michael Camdessus
5. World Bank
6. President Suharto of Indonesia
7. Russian Prime Minister Sergey Kiriyenko
8. President of Russia, Yeltsin
9. President Fernando Cardoso of Brazil

Hannah: You just heard the best daily news for historical facts and trivias, reliable,
knowledgeable, and researched based news. Again this is ECN News. This has been
Hannah Casambros bringing you the best news around the globe. Thank you and God
Bless.