EAST ASIA CRISIS

SECTION C-GROUP 9

Presenters & their contribution

NAME ROLL NO. CONTRIBUTION

NAVYA MUKHI 2013162 Description of Four Asian Tigers, East Asia Miracle , Before Crises situation

MANDEEP MOHANDAS 2013145 Description of beginning of crises,triggering events,other events.

JASLEEN KAUR 2013122 Effects of crises on countries like Indonesia ,S.Korea, Phillipines,Japan, Taiwan,etc.

HITESH DEVA 2013118 Effect on U.S & India, why India was not affected much by this crises.

JAI PAREKH 2013121 IMF Role,why Asian Crises was not predictable & conclusions

South Korea Indonesia Philippines Thailand Hong Kong Singapore Malaysia Taiwan

East Asian Countries

Source : Google Images

The Four Asian Tigers or Asian Dragons are the highly developed economies of Hong Kong, Singapore, South Korea and Taiwan (Republic of China).

These regions were the first newly industrialized countries, noted for maintaining exceptionally high growth rates and rapid industrialization between the early 1960s and 1990s.

All four Asian Tigers have a highly educated and skilled workforce and have specialized in areas where they had a competitive advantage.

They sustained rate of double-digit growth for decades.

Four Asian Tigers

Many factors have been identified as the cause of East Asia's relative success - outward orientation, high saving and investment rates, macroeconomic discipline, and other good public policies

Each focused on exports to rich industrialized nations.

Each of the Asian Tigers had high tariffs on imports and undervalued currencies.

They had high interest rates attractive to foreign investors looking for high rate of return.

East Asia Miracle

Received large inflow of money. High growth rate (8-12%GDP). Dramatic run up in asset prices. Increase capital investment. High per Capita Income. Thailand, Indonesia and South Korea had large

private current account deficit. It led to excessive exposure to foreign exchange

risk in both the financial and corporate sectors.

Before Crisis

The rapid reversal of private capital inflows into Asia.

Net private inflows dropped from $93 billion to -$12.1 billion.

The sudden drop in bank lending followed a sustained period of large increases in cross border bank loans.

At the end of 1996, the proportion of loans with maturity of one year or less was 62% for Indonesia, 68% for South Korea, 50% for the Philippines, 65% for Thailand, and 84% for Taiwan.

Beginning of Crisis

In early 1997 in Thailand Hanbo Steel, Sammi Steel and Kia Motors collapsed.

These bankruptcies, in turn, put several merchant banks under significant pressure.

The Bank of Thailand lent over 200 billion ($8 billion) to distressed financial institutions through Financial Institutions Development Fund (FIDF).

The BOT committed almost all of its liquid foreign exchange reserves in forward contracts.

Usable reserve levels of Central Bank fell sharply.

Triggering Events

In late June 1997, the Thai Government removed support from a major finance company, Finance One.

This shock accelerated the withdrawal of foreign funds, and prompted the currency depreciation on July 2, 1997.

The Thai baht devaluation triggered the capital outflows from the rest of East Asia.

Other Events

oWhat happened in Indonesia : Drastic devaluation of the rupiah: from 2,000

to 18000 for 1 US $. Sharp price increase. Widespread rioting. oWhat happened in S. Korea : Drastic devaluation of the won from 1,000 to

1,700 per US $. National debt to GDP ratio more than

doubled. Major setback in automobile industry.

Effects on Countries

oWhat happened in Philippines : Growth dropped to virtually zero in 1998. Peso fell significantly, from 26/US$ to 55/US$ .

oWhat happened in Japan : 40% of Japan’s export go to Asia, so it was affected even

if the economy was strong. GDP real growth rate slowed from 5% to 1.6% . Some companies went bankrupt. The Japanese yen fell to 147. Japan was the world's largest holder of currency

reserves at the time, so it was easily defended, and quickly bounced back.

Effects On Countries

What happened in Hong Kong : Hong Kong dollar came under attack in

November as a result of currency depreciations.

Hong Kong banks faced steeply rising interest rates on liabilities

What happened in Taiwan: New Taiwan dollar also came under

pressure and fell sharply, despite Taiwan's huge stock of reserves.

Effects On Countries

Markets did not collapse, NYSE severely hit.

Dow Jones industrial average suffered as 3rd biggest point losses.

Raised the value of US Dollar.

The higher US Dollar caused their own exports to become more expensive & less comparative in global markets.

Effects On U.S

India was relatively unaffected by the East Asian crisis.

India’s balance of payments was also spared the effects of the East Asian turmoil.

Indian rupee depreciated by 15% against the US dollar, compared to declines of between 25 and 35% in the Thai, Malaysian, and South Korean currencies and a 70% fall in the Indonesian rupiah

Effect On India

Floating exchange rate with some influence by the RBI during periods of crisis.

Strong fundamental growth with services sector being the prime reason.

External debt to GDP had been declining for the past few years.

India does not have capital account convertibility so capital outflows through a contagion effect could not destabilize the economy.

Banks in India are discouraged from making investments in real estate and the stock markets, while corporate exposure to external debt has been controlled.

Why was India not affected much?

Provided $120 billion as bailout package. Imposed restrictive condition

IMF programs up till the end of 1997 apparently added to the panic.

The IMF programs generally called for key actions like immediate bank closures, tight domestic credit, high interest rates on central bank discount facilities, fiscal contraction.

Non-financial sector structural changes. The de-capitalized banks restricted their lending in order to move towards capital-adequacy ratios required by bank supervisors and by the IMF.

Currency depreciation and stock market collapse continued long after the programs were signed.

Local called the financial crisis “the IMF crisis” due to its controversial role.

IMF Role

The Countries maintained good budgetary positions.

Domestic savings and investment rates were very high throughout the region.

Interest rates were usually less in rest of the world (US and Japan).

Massive capital inflows were attracted into the region during the 1990s.

Healthy Forex reserves – Thailand reached $38.6 billion in 1996 equivalent to over 7 months of imports .

Why The Asian Crisis Was Not Predicted

East Asian crisis resulted from financial panic that arose from certain emerging weaknesses in these economies.

It could have been largely avoided with relatively moderate adjustments and appropriate policy changes.

There were macroeconomic imbalances, weak financial institutions, widespread corruption, and inadequate legal foundations.

Abrupt actions by domestic and international policy makers can worsen an incipient crisis, by helping to trigger the capital outflow.

Conclusion

Referenceshttp://discover-it.blogspot.in/2007/06/east-asian-currency-crisis-of-1997-98.html

http://en.wikipedia.org/wiki/1997_Asian_financial_crisis

http://internationaldebtcrisis.wikispaces.com/Asian+Financial+Crisis

http://www.newyorkfed.org/research/economists/pesenti/whatjapwor.pdf

http://www.imf.org/external/pubs/ft/fandd/1998/06/imfstaff.htm

http://www.ukessays.co.uk/essays/economics/east-asian-financial-crisis.php

http://www.360doc.com/content/06/1201/14/13799_279419.shtml

Thank You