1997 FINANCIAL

CRISIS
BY GROUP 7

HOW IT ALL STARTED

The crisis started in Thailand (known in Thailand as the Tom Yum Goong) on
July 2nd, with the financial collapse of the Thai baht after the Thai RECOVERY
government was forced to float the baht due to lack of foreign currency to
support its currency peg to the U.S. dollar.  The annual rate of
At the time, Thailand had acquired a burden of foreign debt that made the
consumer price inflation
country effectively bankrupt even before the collapse of its currency. increased from 2.7
percent to 5.3 percent
In July 1997, within days of the Thai baht devaluation, the Malaysian ringgit between 1997 and
was heavily traded by speculators. The overnight rate jumped from under 8%
1998. The rate of inflation
to over 40%. This led to rating downgrades and a general sell off on the stock
and currency markets. measured in terms of the
producer price index
In 1998, the output of the real economy declined plunging the country into its increased from 2.7
first recession for many years. The construction sector contracted 23.5%,
percent to 10.7 percent
manufacturing shrunk 9% and the agriculture sector 5.9%. Overall, the
country's gross domestic product plunged 6.2% in 1998. During that year, the between 1997 and 1998
ringgit plunged below 4.7 and the KLSE fell below 270 points. In September and then declined to 3.2
that year, various defensive measures were announced to overcome the crisis. percent in 1999.

WHAT ARE THE Public expenditure led

IMPACT ON THE
MALAYSIAN
ECONOMY
The Malaysian economy was an
import-export based economy,
therefore during the crisis,
currency exchange rate washighly
beaten by the conditions. Thus, it
decreased the exports of the
country, due to low exchange rate
in the forex market.as a result,
companies could not generate
the revenues, and they were more
exposed to the risk of default.
On the other hand, the private
investment also decreased due to
lack of confidence over the
domestic economy. Many
businesses had filed for
bankruptcy during the crisis.Apart
from that, stock market came
down by 50%, and assets prices
also face devaluation by 40%, and
currency also depreciated by
31.4%.
MEASURES TAKEN the way to recovery.
DURING THE CRISIS? Consequently,
contraction in total
investment slowed to 6
Interest rates were
percent compared to 45
significantly reduced,
percent contraction in
allowing firms and
the previous year.
consumers to breathe again
and then to borrow, thus
improving investment and
consumption conditions
The statutory reserve
requirement was reduced to
increase liquidity, and banks
were encouraged to increase
lending.  While government
boosted its spending, to get
the economy moving again
when the private sector was
in the doldrums.