1997 ASIAN FINANCIAL

CRISIS
KRISHNA CHAITANYA
CHIRAG GOYAL
DEBASHISH SAMAL
DHRITIDHARA KAUSHIK
HIMANSHU PUNJ
1997 Asian Financial Crisis
Period offinancial crisis Gripping East Asia
leading towards world economic meltdown.
Started in Thailand.
Fall of Thai Baht, the Thai government was
forced tofloatthe baht due to lack
offoreign currencyto support its
currencypegto theU.S. dollar.
High Foreign Debts.
Chain Leading to Financial
Crisis
Thailand (early 1997): Exports decline Loss
of investors confidence Currency
depreciation due to lack of foreign reserve
IMFs aid package required currency
devaluation & higher domestic interest rate
Increase in non-performing loans Local
stock market tumbles
The Bubble
Thailands economy bubble fuelled by Hot money
Debt-GDP Ratios went up to 180%.
Development money went in a largely uncontrolled manner
to certain people only, not particularly the best suited or
most efficient, but those closest to the centers of power.
Real estate speculation
Countries became excessively dependent upon exports for
their economy
 The Tripping Point
U.S. economy recovered from a recession in the early 1990s,
Began to raise U.S. interest rates to head off inflation.

Downturn
Asset prices began to collapse
Depreciative pressures on exchange rates
Capital fleeing could not be stopped
Central bank allowed currencies to float
 Affected Countries
The Start Thailand

Indonesia

Malaysia

South Korea

Philippines

Japan
Effects On Currency
Causes Of The Crisis
Foreign debt-to-GDP ratios rose from 100% to 167% in the
four large ASEAN economies in 1993-96

Large CAD

Financed by hot money flows (on capital account). Hot money

flows were accumulated because of higher interest rates in
the East.

Financial deregulation encouraged more loans and helped to

create asset bubbles

Booming economy and booming property markets

encouraged expansive borrowing by firms.
 In the late 1990s, the US increased interest rates
to reduce inflationary pressures. Higher interest
rates in the US, made the East less attractive as a
place to move hot money flows. As hot money
flows into the east dried up, currencies started to
fall and governments struggled to keep exchange
rates at their fixed level against the US Dollar.

The devaluation caused debt to be even more

difficult to repay and countries started to default.
Role Of IMF
Created a series of bailout for most affected
economy.

Provided $120 billion as bailout package.

SAP Structural Adjustment Package.

1. Change currency, banking and financial system.
2. Reduced Govt spending and deficits.
3. Close insolvent banks and financial institutions.
4. Raise interest rate.
Effects Of IMF Intervention
At this stage the IMF intervened to try and
stabilise the crisis. However, their intervention
has proved very controversial, with many
arguing that their intervention made things
worse.

The IMF insisted on fiscal restraint lower

spending, higher taxes and privatisation. This
contractionary fiscal policy caused the
economic downturn to exacerbate and the
economy plunged into recession. Bankruptcies
increased and there was a flight of capital.
Why India was not affected by the
crisis?
Full Capital Convertibility was not allowed.

Lock in Period for foreign investment in real estate.

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 has been declining for the past

few years.
Thank You