...did the Asian Financial Crisis (AFC) take many by surprise? Explain the major contributing factors that caused the crisis (and their effects), and discuss the lessons that can be learned in relation to preventing and/or responding to future crises. The Asian Financial Crisis (AFC) of 1997 was a period of financial turmoil and volatility that spread across Asia. Prior to July 1997, most of the South East Asian currencies were tied to the US dollar. The crisis began primarily in Thailand when the Thai baht came under pressure that its value would not hold. The pressure on the Thai baht caused a widening of the Thailand’s Current Account Balance (CAD) and the using up of Thailand’s foreign reserves. This forced the Thai government to float its currency and lead to its devaluation. Real estate and real asset value began to fall and foreign investors began pulling out of South East Asia, triggering the financial crisis that would spread across Asia. The next section of this paper will attempt to answer questions of why the AFC was unanticipated by so many economists and experts. It will also attempt to address the major contributing factors that lead to the AFC and in turn its effects. Lastly this paper will conclude with the lessons that could be learnt from one of the most shocking currency crises of recent times. Upon careful reflection, many experts (Krugman 1998; Radelet & Sachs 1998; Stein 2004) have asked how such a crisis came as such a surprise to these Asian economies...
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...THE EAST ASIAN CRISIS Introduction: The East Asian crisis was a period of financial crisis that gripped much of Asia which beginning in July 1997 and raised fears of worldwide economic meltdown due to financial contagion.1 Several countries such as Malaysia, Thailand, Indonesia, the republic of Korea and the Philippines were hit directly while others such as Taiwan province of China, Singapore and especially Hong Kong, China were badly affected. What began as a speculative attack on the Thai baht in July 1997 quickly spread as ‘contagion’ to the other countries. Over a three-month period between July and October 1997, the baht fell nearly 40 per cent, the Malaysian ringgit and Philippine peso by about 27 per cent, the Indonesian rupiah by about 40 per cent and the Korean won approximately 35 per cent against the United States dollar. For countries that had been dubbed “miracle economies” this was a serious blow with wide-ranging economic, social and political ramifications.2 In this paper we would try to undertake an empirical analysis of the factors leading to the crisis by analysing on two major points: 1) How have these countries performed in the years leading to the crisis? 2) What was the policy response to the currency crisis and what similarities/differences were there in policy responses across countries? We try to do this by analysing the macroeconomic data of three countries, Malaysia, Thailand and the Republic of Korea, over a 13-year period, from 1990 to 2002. The...
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...| Asian Crisis of 1997 | | | Prepared by:Azra Becirovic and Sanela Bilalic | | April 21, 2012 | Long before Asian financial crisis has started, South Korea, Thailand, Indonesia, and Malaysia had an increasing economic performance; economy was fast growing, saving rates were high, and inflation low. Turning point in Asian economy was 2 July 1997, the day when Thai Baht fell around 20 % against the $US. “It all began in Thailand’ summarizes the conventional explanation of the early stages of the crisis.” (Hill, p.3) How it all began, what factors caused the crisis, what segments were affected the most, what was the backup plan, and what policies should have been taken to prevent the crisis are the points that this paper will cover. First and Second-Generation Models According to 1996 annual report of Bank for International Settlements (BIS), pre-crisis fundamentals exhibit economic performance of Asian countries. They’ve experienced moderate inflation rates of about 6%, high savings rate of 32%, and trade openness indicators of 39%. Table 1: East Asian Economic Conditions Before Crisis Although accounting and macroeconomic analytics have failed to foreseen the currency crisis, which is inevitable, first and second-generation models explain us was it due to weakening macroeconomic fundamentals or financial contagion. In accordance to first-generation model developed by Krugman 1979, market-speculative movements, in response to policies, are incompatible...
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...Verified Tuitor FIN 6644 GLOBAL BANKING CRISIS DR. KRISHNAN DANDAPANI 06 – 07 – 2011 GLOBAL BANKING CRISIS Identify the lessons learned from the prior global banking crisis? There were different reasons responsible for the Financial Banking Crisis pertaining to different countries. In Argentina for example, it was due to the fact that financial institutions were forced to rely heavily on Central Bank financial assistance when they encountered deposit withdrawals; In Asia, it began as a result of Thailand devaluating its currency which caused other Asian export-oriented growth nations (Malaysia, South Korea, Indonesia etc.) to devaluate their currencies by letting them float and ending the peg to the U.S dollar: In the United States, Subprime loans induced the Financial Banking Crisis of 2007 – 2008. Notwithstanding, valuable lessons were learned from the prior Global Banking Crisis. ✓ The primary lesson learned was for Banks and financial institutions learned to be very vigilant. In doing so, they will have to set up some independent monitoring and regulatory system to oversee its activities. ✓ One lesson is that Bankers seem not to scrutinize credit risk as closely when they serve only as mortgage originators and then pass it on to Mortgage-Backed Securities investors rather than hold the paper themselves. ✓ The Central Bank will have to set in place some sort of infrastructure or framework to support to monitor, control, and prevent asset bubbles...
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...120 Principle of Banking GROUP PROJECT Financial Crises: Asia 1997 and Global Recession 2008 Group members: Professor: Vesna Plakalovic Faris Njemcevic Ibrahim Music Avdo Halilovic Sabit Ceho 1. Explain both crises in your own words As for the Asian crisis which has occurred in year 1997/1998 we can say that something that looked really small, and not important has impacted most of the Asian countries but the World as well. As for the crisis beginning, we can say that it has begun in the Thailand. Problems started in the USA where was a lot of loans and credits that lead towards the collapse and bankruptcy of most of the banks and financial institutions in the USA. Looking for the investment and good return of investments, Americans banks and investors have decided that the Middle East and Asian countries are perfect investing area. When American companies started to invest into Asian countries like Thailand ,which has really low GDP and standard of life, big money income into poor countries it has only one possible outcome. GDP in Thailand and other surrounding countries started to appreciate really fast which was almost uncontrollable. Problem was that many experts have noticed and put a warning on ,was that GDP should appreciate but on a stabile level, their thesis was that GDP of poor countries and...
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...India and the Global Financial Crisis What Have We Learnt? 1 - Duvvuri Subbarao _________________________________________________________ Thank you for inviting me to deliver the 2011 K R Narayanan Oration. It is an honour to which I attach a lot of value. President Narayanan 2. Late President Narayanan was a distinguished diplomat, a reputed parliamentarian, a capable minister and above all an erudite scholar. Born at the very bottom of India’s social pyramid, he rose on to occupy the highest office in the country with no assets other than hard work, integrity and humility. ‘A working President’, as he described himself, he never allowed dogma to overwhelm his beliefs and convictions. 3. President Narayanan was in office from 1997 to 2002, a time when globalization, as we are experiencing it in the current times, was taking root. At the banquet he hosted for the visiting US President Bill Clinton in New Delhi in March 2000, President Narayanan remarked: “Mr. President, we do recognise and welcome the fact that the world has been moving inevitably towards a one-world... But, for us, globalization does not mean the end of history and geography, and of the lively and exciting diversities of the world.” This was a thoughtful remark. As much as globalization may be inevitable, history and geography need not be destiny. If we learn the lessons of experience, we will not repeat the same mistakes. This indeed is the topic for my 1 K.R. Narayanan Oration by Dr. Duvvuri...
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...The financial crisis which began in July 1997 in the East Asian countries, Thailand, Indonesia, Malaysia and Korea, has had devastating effects on their economies. Growth rates in these countries which were in excess of five percent before 1997, turned sharply negative in 1998 and, at the time of this writing it is not yet clear when these economies will turn the corner and resume positive rates of growth. This paper examines why these countries, which were part of what has been termed "the Asian miracle" and were able to eradicate so much poverty, are now undergoing severe economic contractions, with such harmful effects on their populations. A breakdown of information in financial markets is the key factor that has driven this crisis. After laying out an asymmetric information view of the Asian financial crisis, this paper goes on to use this framework to explore lessons from this crisis. 1. An Asymmetric Information View of the Asian Crisis The financial system plays a critical role in the economy because, when it operates properly, it channels funds from those who have saved surplus funds to those who need these funds to engage in productive investment opportunities. The major barrier to the financial system performing this job properly is asymmetric information, the fact that one party to a financial contract does not have the same information as the other party, which results in moral hazard and adverse selection problems. An asymmetric information view of financial...
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...Global perspectives on governance: lessons from east and west While the core principles of governance are the same throughout the world, the Asian model places particular emphasis on trust and relationships. This paper discusses the key differences between the western and Asian approaches to help business leaders explore the best aspects of both. Conclusions 1. The corporate governance model that’s familiar in Asia, Africa and most developing nations places strong emphasis on trust and relationships. This can be beneficial for stakeholders: the typical pattern of ownership in businesses means that there can be a longer-term view of an organisation’s success compared with that in a western company. But the system is potentially vulnerable to corruption and cronyism. It can also be difficult to implement basic control procedures. 2. The prestige of what can be broadly termed the western governance model has diminished in the aftermath of the financial crisis. This model has driven globalisation and has emphasised a combination of legislation and standards as well as transparency, with a focus on developing appropriate structures, processes and frameworks. This is widely understood and helps to create a level playing field. But major financial failures over the past two years, such as that of Lehman Brothers, have shown that there are limits to what can be done to tighten checks and balances. A new emphasis on the behavioural aspects of governance is overdue. ...
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...ASIAN FINANCIAL CRISIS Reading this article brings me back to the unpleasant memories which occurred 15 years ago in the month of July. That time Peso suddenly depreciated by more than 10 percent in a single day and the depreciation further continued in the days to come. Panic suddenly gripped the financial sector and days later the panic spread like a domino effect into other sectors such as the property sector and import sector. The last time the peso depreciated by double- digit percentage was during the political crisis of the Marcos era which began when the late Senator Benigno Aquino was assassinated. What was so unusual about this economic crisis was that it was not limited to a specific country but it spread like wildfire from one country to another within the Southeast Asian region. I remember this crisis began in Thailand and that I was reading the business section of Manila Bulletin and one of the headlines was the sudden depreciation of Thailand Baht against the USD. Little did everyone know that a few days later our Philippine Peso would suffer the same fate. Had I known I would have converted all my pesos into USD. Many of the leaders in the Southeast Asian countries, notably the then Malaysian Prime Minister Mahatir Mohammad blamed the Asian financial crisis to currency speculators. Mahatir specifically single out US financial wizard George Soros as the one who was to be blamed for the crisis contagion. Allegedly, Soros speculated heavily against the Malaysian...
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...D December 1, 2012 International Crisis in Lending Lessons to be learned Group V Samantha Jeffrey Gabriella Stankovic Na-taisha Williams The debt crisis played a huge role in international lending. This report will discuss how economic crisis can result from many different factors such as changes in government policies which result in failure, and the cost of bank bailouts. Least developing countries also learned a lesson about how interest rates and low exports and imports played a major role in the financial crisis. These countries also tried to stabile their country's currency by fixing its exchange rate to that of the United States, which also resulted in failure. European countries also integrated their currency to Euro that caused a major crisis in lending. All are major factors that contributed to a crisis in international lending. Countries need to know what they are doing wrong before they can solve their problems. The historical events discuss will help serve as answer of how it can be resolved. Sovereign risk is the risk of lending money to the government with the risk of not being able to repay the obligation. There is always a risk in lending but the previous debt crisis and the crisis that is occurring in Europe plays a role in whether financial institutes want to lend to governments. The sovereign risk is important in international lending because many countries borrow money...
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...Title Options: * What's Dragging Down the Asian Economy?: A New Look at the Determinants of Growth * Drivers Behind the Scene: Determinants of Economy Growth in Asian Countries Excerpt * Researchers found that private and public investments, lower financial risk, higher FDI and flexible exchange rate regimes appears to support Asian countries' economy growth, while more open capital accounts marginally reduce growth facing financial crisis. Taglines/Pull Quotes: * “The majority of Asian countries have some form of flexible regime that we term an intermediate float” * “The marginal impact of public investment is consistently larger than that of private investment” * “The results confirm our earlier expectation that the recent crisis had little impact on Asian growth” Marketing Recommendations: Relevant handles (@s) * @ IMFNews, @ ManukGhazanchya, @ForeignAffairs, @WorldBank Relevant hashtags (#s): * #Asia, #Economy Growth, #Public Investment, #Private Investment, #FDI, # Exchange Rate Regime, # Financial Risk, # Capital Account Openness, #Floating Regime, #Pegged, # Financial Crisis, #IMF Working Paper, #New Determinants Publication Timing: (Article Source) A New Look at the Determinants of Growth in Asian Countries, Manuk Ghazanchyan, Janet G. Stotsky, and Qianqian Zhang, IMF Working Paper, 2015 August. By Yawen Zhao Following several decades of remarkable growth performance, Asian countries, notably China, are facing a possible...
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...Criticisms on the controversial roles of IMF in East Asia Financial Crisis Introduction Now and then, nation to nation, financial crises are inevitable: Mexico in 1994, the whole East Asia region in 1997, Brazil in 1999, and the most recently Argentina in 2001. Looking back to the victims of such financial crises, we found that most of them are labeled as the developing countries, whose financial sectors were still weak at that time yet were impetuously exposed to the advocated ‘Liberal financial market’ which was supported by the Neoclassical Liberalism social economists. Among all these financial crises, the financial storm in East Asia, starting from the year of 1997, wreaked beyond doubt the greatest havoc on the Asia and the world economy as a whole, dragging down the ‘Asian tigers’ (Thailand, Malaysia, Indonesia, Philippine, Hong Kong, Korea, Taiwan and Singapore) from the peak of the glorious ‘Economic Miracle’ in the past few years. Because of the severity and contagion of the East Asia Crisis, important questions have been raised such as the causes of the crisis, the role of the International Monetary Fund (IMF), and the financial architecture of international capital markets. As one of the most important international organizations, IMF has its great impact on the world economy. In this paper, the influence of IMF before the eruption of the crisis and its role in the recovery of East Asia economy will be presented...
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...East Asian Economic Crisis A large economic downturn in East Asia threatens to end its nearly 30 year run of high growth rates. The crisis has caused Asian currencies to fall 50-60%, stock markets to decline 40%, banks to close, and property values to drop. The crisis was brought on by currency devaluations, bad banking practices, high foreign debt,loose government regulation, and corruption. Due to East Asia's large impact on the world economy, the panic in Thailand, Indonesia, Korea, and other Asian countries has prompted other countries to worry about the affect on their own economies and offer aid to the financially troubled nations (Sanger 1). The East Asian crisis has affected almost all of the Asian nations, but the three hardest hit countries are Thailand, Indonesia, and South Korea. The panic began in Thailand in May of 1997 when speculators, worried about Thailand's slowing economy, exces sive debt, and political instability devalued the baht as they fled for market-driven currencies like the American dollar. Indonesia's economy soon fell soon after when the rupiah hit a record low against the U.S. dollar. Indonesia is plagued by more than $70 billion worth of bad debts and a corrupt and inefficient government. Thailand and Indonesia also suffer from being overbuilt during real estate booms that Reven2 were the result of huge influxes of cash by optimistic foreign investors. South Korea faltered under the weight of its huge foreign debt...
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...for corporate businesses globally, but from a financial market perspective, the ease in which capital flows is also encompassed in the “world is flat” concept. Due to technological advances, the global financial market has been refined with electronic exchanges, networks, institutions, and communications. Each country may have its own financial market, but the world is so closely tied together, causing global affects when one market is prospering or suffering. Currently all eyes are on Europe and the “Euro Crisis” stemming from their uncontrollable debt. There are discussions of a $1 trillion dollar bailout for the 16 “Eurozone” countries, which could ultimately cost and estimated $3 trillion or bankruptcy. Greece and Ireland are in the forefront of the countries in financial ruin. With the media making the entire world aware of these countries financial crisis and their insolvent state, investors are reluctant to continue to buy bonds that may not payoff. These investors are expected to bring in cash flow buy buying bonds so the European country can pay back the bank loans with extremely high interest. European Central Bank, responsible for monetary policy, bought euro-zone bonds with the promise to sell assets to offset the purchase of these bonds. The problem lies in the wide spread knowledge that this is a very high risk investment which may not bring a return. With both the United States and Europe in economic crisis, investors are looking toward other markets...
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... Introduction 2 Country Overview 2 The Political Environment 3 Recent History 3 The Present Government 3 Political Stability 4 Opposition Parties 4 Economic and Financial Analysis 5 Trade History & Major Products 5 GDP Growth per capita 5 Unemployment & Price level Changes Inflation 6 Exchange Rate Innovations 7 Investments in the Stock Market 7 Investments in the Bond Market 8 Foreign Exchange Reserves 9 Structure of Industries 10 The Banking System 10 Monetary Policy / Money Supply Growth 11 Foreign Debt 12 Capital Flight 12 Asian Currency Crisis 13 Philippines before the crisis 13 What caused the Asian Currency Crisis? The effect it had on the Philippines and other countries 13 Looking into the Future 17 Prevention as the Best Form of Management 17 Some Policy Lessons From the Asian Crisis 17 Need for Great Caution About Financial Liberalization and Globalization 17 Manage External Debt Well and Avoid Large Debts 17 Manage and Build Up Foreign Reserves 17 The Need for Capital Controls and a Global Debt Workout System 18 Conclusion: Summary / Comments / Recommendations 19 Works Cited 21 Appendix A 23 Appendix B 24 Appendix C 25 Appendix D 26 Appendix E 27 Appendix F 28 Introduction The Philippines were ceded by Spain to the US in 1898 following the Spanish-American War. They attained their independence in...
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