The economic and currency crisis in southeast asia. At the same time, the financial crisis in east asia has contributed to the. Clinton, the imf and wall street journal toppled suharto steve hanke former contributor opinions expressed by. The 1997 crisis produced a drop in gdp in 1998 of more than percent, much larger than the drops in thailand and korea.
A currency crisis is brought on by a sharp decline in the value of a countrys currency. Chapter 1 causes and characteristics of the asian currency. In the four years between 1993 and 1996 the tiger economies of asia led the world in terms of gross domestic product gdp growth and stock market returns as foreign and local investors piled in and embraced the opportunity. We identify five main types of financial crises, which may in fact be intertwined in any particular historical episode. The currency crisis that startedin thailand spread to the neighboring countries of southeast asiaand eventually triggered serious crisis in the currency and financialmarkets of south korea which had just recently joined the ranksof the advanced economies of the world.
This is the list of currencies presently in circulation in asia. The current account measures the net of all shortterm international transactions including trade in products and services, and interest. Frqwhqwv 4 lqwurgxfwlrq 6 5 dwwkhurrwriwkhdvldqfulvlv 7 6 fxuuhqwdffrxqwlpedodqfhvdqgpdfurhfrqrplfixqgdphq0 wdov. In malaysia, the ratio of financial institutions claims to domestic gdp had. When a series of asian countries got into a serious economic crisis in the middle of last year, it took most observers by surprise.
After the pegs collapsed, borrowers who had not hedged their foreign currency borrowing had difficulty servicing their debts and, in some cases, went bankrupt, thus worsening the crisis. Pdf southeast asia and the asian and global financial crises. Contribution navya mukhi 20162 description of four asian tigers, east asia miracle, before crises situation mandeep mohandas 20145 description of beginning of crises,triggering events,other events. The asian currency crisis unuwider united nations university. Lessons from the east asian currency crisis and recovery. The asian financial crisis of 1997 is another wellknown example of a currency crisis. That was the day the thai government announced a managed float of the baht and called on the international monetary fund imf for technical assistance. By 1997, most of the nations were paralyzed and unable to bailout the banking and financial sector of the economy owing to the domino effect. Introduction the asian financial crisis was a period of financial crisis that gripped much of east asia beginning in july 1997 and raised fears of a worldwide economic meltdown due to financial contagion.
The political economy of the asian financial crisis. Strong growth was being funded by ever increasing levels of debt and with offshore interest rates far. Jasleen kaur 20122 effects of crises on countries like indonesia,s. A financial crisis started in thailand in july 1997 and spread across east asia, wreaking havoc on economies in the region and leading to spillover effects in latin america and eastern europe in 1998. Introduction so much has been written and revealed since july 1997 on the causes of the asian crisis that.
The beginning of the asian financial crisis can be traced back to 2 july 1997. The kuwaiti dinar, the official currency of kuwait, is the worlds most valued currency. This became the trigger for the asian currency crisis. Some currencies, such as the artsakh dram, are not used in daytoday commerce, but are legal tender. Table 2 shows change in some of the crisis indicators in the five east asian countries and india. The asian financial crisis of 1997 affected many asian countries, including south korea, thailand, malaysia, indonesia, singapore, and the philippines. Adverse external shocks had struck the developing countries of east and southeast asia in the past, most notably the oil price increases of the 1970s and early 1980s. Since the period of high growth begana period dating to the 1950s for japan and the 1960s for korea, taiwan, hong kong and singaporeeast asia had not. The role of financial supervision in restoring growth takatoshi ito institute of economic research hitotsubashi university working paper series vol.
With the economies having pegged their currency on the dollar, the value of their exports began to dwindle as early as 1995. A report in business week in august 1997 revealed that hedge funds made big profits from speculative attacks on southeast. The asian financial crisis was a period of financial crisis that gripped much of east asia and southeast asia beginning in july 1997 and raised fears of a worldwide economic meltdown due to financial contagion the crisis started in thailand known in thailand as the tom yum goong crisis. The crisis hlt the most rapidly growing economies in the world and prompted the largest financial bailouts in history. From the 199798 asian financial crisis to the 200809. The efforts of market participants to cover previously unhedged foreign currency exposure after the onset of the crisis further weakened asian currencies. Current models for the explanation of currency crises are indeed inadequate in this instance. The asian financial crisis of 199799 stephan haggard introduction the asian economic crisis of 199799 was a singular event in the regions postwar economic history. Real estate and the asian crisis berkeley program on. The present currency crisis is not a transitional phenomenon in terms of either its extent or the size of the declines that have occurred. In a relatively short period of time, the crisis currency crisis shock was spread even beyond asia. Report of the subcommitteeon asian financial and capital markets of the committee on foreignexchange and other transactions lessons from theasian currency crises risks related to shortterm capital movement and the 21st centurytype currency crisis summary. The onset of the crisis currency attacks problems in thailand the asian crisis started with attacks on currencies in the region.
The political economy of the asian financial crisis the asian economic crisis of 199798 was a singular event in the regions postwar economic history. After posting some of the most impressive growth rates in the world at the time, the socalled tiger economies saw their stock markets and currencies lose about 70% of their value. Pdf despite the deleterious impact of the 200809 global financial crisis, which seriously undermined mainstream economists claims that the. What caused the asian currency and financial crisis. What was the main reason for the asian financial crisis of. Southeast asia had developed into a global financial crisis within the. The asian currency crises becameeven more ominous when it reached south korea in late october. Imf pre crisis surveillance concluded that korea was not likely to become a victim of the financial crisis that was beginning to engulf southeast asia in the summer of 1997.
Causes and sources of the asian financial crisis yilmaz akyuz, unctad, geneva paper presented at the host country event. This is often called hot money because it can leave the country very quickly unlike i. The deep currency crisis which erupted in the beginning of july 1997 among the rapidly growing economies of southeast asia raises the question. In november 1997, korea was hit by a currency cumbanking crisis that left it no option but to seek official assistance from the imf. The new york stock exchange briefly suspended trading. Spreading quickly within and outside the region, the crisis brought the worlds 11th largest economy, korea, to the brink of bankruptcy and led to the defaults by russia and brazil. Korean direct investment was soaring in china, southeast asia, eastern and western europe. The asian financial crisis 20 years on new statesman. Asian financial crisis, major global financial crisis that destabilized the asian economy and then the world economy at the end of the 1990s the 199798 asian financial crisis began in thailand and then quickly spread to neighbouring economies. Following the canonical krug man 1 979 model, a balanceofpayments crisis currency depreciation, loss of foreign exchange reserves, collapse of a pegged exchange rate. Before its introduction in 1960, the indian rupee was circulated in kuwait. It is the sharpest financial crisis to hit the developing world since the 1982 debt crisis. The asian financial crisis was a period of financial crisis that gripped much of east asia and southeast asia beginning in july 1997 and raised fears of a worldwide economic meltdown due to financial contagion.
The significant growth rates of the asian economies affected by the financial crisis were baffling in the least in the period prior to the predicament. In fact, trade and financial channels spread contagion during the mexican peso crisis, just as they did in the asian crisis two years later. In november 1997, korea was hit by a currencycumbanking crisis that left it no option but to seek official assistance from the imf. Origins of the crisis financial crises are seldom generated by one or two isolated factors. This decline in value, in turn, negatively affects an economy by creating instabilities in exchange rates. Developments andcauses of the asian currency crises. Do we need a new theory, or can existing models be expanded to enable us to explain and predict events such as those in asia. If, in cases of the affected asian countries, there were strong warning signals of a heightened probability of a financial crisis prior to the 1997 crisis from such models, then there are good reasons to suggest that the crisis was caused more by weak fundamentals than by market overreaction and investor panic. The asian financial crisis, also called the asian contagion, was a series of currency devaluations and other events that spread through many asian markets beginning in.
Tokyo club papers 1999 the yen, the yuan, and the asian currency crisis vol. This pdf is a selection from an outofprint volume from the national bureau. Jul 18, 2007 some have argued that in some respects the mexican crisis was a precursor to the new type of crisis seen in asia see ito, t. For china, sound economic fundamentals, coupled with tight regulation on capital account transactions, have helped minimize the negative repercussions from the crisis. Immediate causes of the crisis, and its early development1 a. The east asian currency crisis was a currency crisis inducing a financial crisis u the problem was triggered by perceived insufficient liquidity in terms of foreign exchange reserves to support and sustain the exchange rate u unexpected outflow of shortterm capital including nonrenewal of. If, in cases of the affected asian countries, there were strong warning signals of a heightened probability of a financial crisis prior to the 1997 crisis from such models, then there are good reasons. An asymmetric information view of the asian crisis the. Like elsewhere, the crisis in east asia broke out with a sudden loss of confidence and massive. Couses, policy responses, and outcomes wp998 created date. However, the causes of the crisis in south korea appeared to differsignificantly from those in indonesia and other countries earlieraffected by the contagion.
The thai baht was by all accounts the first to come under heavy selling pressure. Introduction a period of financial crisis beginning july 1997 started in thailand floatingthe pegged currency real estate driven financial over extension excessive foreign exposure resulting collapse of the thai baht also affected indonesia, south korea, hong kong, malaysia, phillipines. Strong growth was being funded by ever increasing levels of debt and. South east asian countries like thailand, malaysia etc for several years before 1997 were receiving large amount of short term portfolio investment money. Jun 28, 2007 the 1997 crisis produced a drop in gdp in 1998 of more than percent, much larger than the drops in thailand and korea. What started in the summer of 1997 as a regional economic and financial crisis in east and. Quigley1 university of california, berkeley, california received january 17, 2001 this paper suggests that activities in the real estate markets in southeast and east asian economies were an important contributing force to the financial crises of 1997 in the asian economies. After laying out an asymmetric information view of the asian. The asian financial crisis, also called the asian contagion, was a series of currency devaluations and other events. Following an insightful paper by krugman 1998, the concept of. The asian financial crisis, which erupted in 1997 in thailand.
The asian financial crisis, which erupted in 1997 in. Some currencies, such as the artsakh dram, are not used in. Symposium on economic and financial recovery in asia unctad x, bangkok, 17 february 2000 a. Spreads on latin dollardenominated bonds over us treasuries the most widely used indicator of country risk shot up the end of 1994 to 1,500 basis. Within the week the philippines and malaysian governments were heavily intervening to defend their currencies, while indonesia intervened and also allowed the currency to move in a widened trading rangea sort of a float but with a floor below which the monetary authority acts to defend the. The asian financial crisis, which erupted in 1997 in thailand, awoke the world to contagion, a new peril inherent to highly interconnected financial markets. There were some similarities but also important differences, not. It began as a currency crisis when bangkok unpegged the thai baht from the u. Nine lessons from east asia 6 minimize currency risk and to encourage trade, foreign direct investment fdi, and other capital inflows. The east asian financial crisis is remarkable in several ways.
Can moral hazard explain evelopment the asian crises. The combination of these factors initiated the east asian crisis in thailand. The usa market the dow jones industrial plunged 554 points or 7. First, the korean crisis, in contrast to other crisishit countries in asia, is believed to be more of a liquidity crisis rather than a structural crisis. Financialsector weaknesses each of the asean4 economies experienced a credit boom in the 1990s, that is, the growth of bank and nonbank credit to the private.
983 386 1191 315 725 1157 59 408 53 1193 1099 1033 68 292 171 1017 1466 581 98 823 1056 550 1217 626 1094 655 186 789 684