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South East Asian Crisis, 1997

Presented By: Ankit Purohit Bhawana Bothra Bharat Talwar Nikhil Narang Jasleen Setia Tanya Sharma

(Thailand) Year :1997 .Place: Bangkok.

Thai Baht was hit by massive speculative attack • June’97 . • Baht was pegged at 25 US$ • May’97 .Prime Minister refused to devaluate the Baht • Thai Government failed to defend the Baht against International speculators .Thailand • During 1985-96 – Average annual growth rate of 9%.

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$ .

1 billion dollars flowed in East Asia Income per capita averaged $11.100 Factors that fuelled such growth included:  Export promotion  Lowered trade barriers  Industrial policy  High Interest rate .But lets begin from the beginning……. $94.    Between 1991 and 1997.

.  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 economic growth Export to GDP ratio grew from 35% to 55%  Excessive exposure to forex movements ..And the story continues.

... Debt-GDP Ratios went upto 180% High Leverage and exposure to forex Dependency on exports Real Estate Speculation US economy recovered from recession Value of US dollar increased – Asian currencies pegged to US caused their exports to become expensive and less competitive The asset bubble .The Climax.bubble formation        High investments in infrastructure and acceleration in money supply led to skyrocketing of property prices.

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 to maintain peg Exhaust foreign reserves Currencies float and drastically deprciate Foreign currency-denominated liabilities grew substantially (in domestic currency terms) More bankruptcies Further deepening of the crisis The bubble burst ..The Climax...

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

.Consequences...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 .. Indonesia         Drastic devaluation of the rupiah: from 2...000 to 18.

South Korea      Won depreciates from 1.Consequences...000 to 1..700 for 1 US$ Moody’s credit rating of country drops A1 to B2 National Debt-to-GDP ratio doubled Excessive debt lead to takeovers Major setback in automobile sector ....

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

..The Saviour..IMF       Liquidity infusion by IMF Cutting back of Government spending by the affected nations Change from a Fixed Foreign Exchange rate to a Floating Foreign Exchange rate Focus on domestic consumption Reforms in banking sector – controlled and well educated lending Some amount of debt to be absorbed by banks ..

establishing strong regulatory frameworks Tax revenue balanced the budget in 2004.9 billion subject to conditionality for reorganizing and restructuring. and another bailout package of $3.And the story End. Thailand’s Fate  IMF unveiled a $17 billion rescue package. 4 years ahead of schedule Baht reached 33/US$ by 2007   ....