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Imf’s Role on Asian Crisis

In: Historical Events

Submitted By tlafleur
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Pages 7
Trisha LaFleur
Econ 375
McNeil
17 November 2014
IMF’s Role on Asian Crisis
In July of 1997 Thailand devalued the Baht and thus began the ‘Asian Crisis’ that would soon affect other Southeast Asian countries including the other two that were hit the hardest Indonesia and South Korea. Each country had no choice but to seek help from The International Monetary Fund (IMF). The IMF would have to pull through in aiding these countries out of this crisis, after carefully reviewing each country and see to what extent their financial problems had developed. As you can see below on Graph 1 each country’s exchange rate had depreciated tremendously during the crisis. With the demise of each Country’s currency their public debt, as shown on Chart 2 below, had grown tremendously. Thailand, Indonesia, and South Korea each developed specific financial restructuring measures that were agreed upon with the IMF.

Graph 1: Chart 2: It all started on May 14th 1997 when Thailand started pouring foreign currency into the market in order to ‘to defend the Thai baht against speculative attacks,’ according to the “TimeLine of the Crisis” written by PBS. Two months later the Baht had reached an all-time low of 20% devaluation. Indonesia started to widen its ‘trading band for the rupiah in a move to discourage speculators’ only seven days after Indonesia’s reach for assistance (PBS). No more than two weeks pass until the Singapore dollar starts to devalue. Shortly after that, the Rupiah plummeted when Indonesia allowed the currency to float freely. Hong Kong, who was still not affected, wanted to protect themselves against speculation attacks. Sadly, when they raised their bank lending rates to 300% it backfired and made and made the stock index fall a little over 10% (PBS). Hong Kong’s Stock Exchange dive wiped ‘$29.3 billion off the value of stock shares’ (PBS). On the...

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