Government

Intervention during
the Asian Crisis
Crisis In Thailand

 until july 1997, thailand was one the world's fastest growing
economies

 High level of spending and low level of saving

 Thailand currency was linked to us dollar

Bank lending situation

 Large funds help to support country's growth.

 Thailand's banks had more funds than they need so they ended up
giving it to commerical developers.
Flow of funds Situation

 Large inflow of funds made thailand vulnerable.Because investors

can lose confidence and thailand banks lent those money to risky
parties.

 Large inflow of funds put downward pressure on interest rate

Export Competition

 During the first half of 1997,

Pressure on the Thai Baht

 Baht experienced downward pressure in july 1997

 on july 2,1997 the baht was detached from the dollar.

 Thailand's central bank then attempted to maintain baht value by

intervention

 supply of baht exceeded us demand for baht.

 value declined more than 20% against the dollar.

Damage to Thailand

 Central bank spent $20 billion baht in the foreign exchange market
as part of direct intervention.

 Corporations in thailand borrowed funds form other countries

 Increase cost of borrowing

Rescue package for thailand

 On August 5,1997 IMF and other countries provided $16billion rescue

package

 Thailand agrred to reduce its budget deficit,prevent inflation from

rising above 9%,raise its value added tax from 7% to 10%
Impact on other Asian countries

 In July and august of 1997, value of Malaysian ruppe,Singapore

dollar and Philippines peso declined.

 Malaysian government failed to maintain its currency value

 Indonesian central bank used more than $500million in direct

intervention to purchase rupee in the foreign exchange market.
Impact of the Asian Crisis on Russia