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Asian Economic Crisis - SPJCM

A summarized presentation on the Asian economic crisis by Sp Jain ( Dubai / Singapore) students. It highlights the key events that took place during the crisis in the late 1990`s

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Asian Economic Crisis - SPJCM

  1. 1. By: Saurabh Damani & Vishwesharaya
  2. 2. • BEFORE THE CRISIS • Thailand • Events • CAUSES • Effects of the Crisis on Economies in the Region • IMF • The Global Impact of the Asian Crisis • Preventing Future Crises • Placement time :!!!
  3. 3.  Tiger economies – Export oriented and Pegged Currencies  World bank endorses their spectacular growth story  Growth rates of 7% in 1970s to 9% in 1990s  Chinese devalue Yuan by 50%,US Dollar appreciate 40% against Yen.
  4. 4.  Capital Inflows  0% export growth in 1996  Current Account Deficits  Carry Trade  Asset Bubble  Currency speculation-role of hedge funds.
  5. 5.  Thai stock market dropped 75% in 1997  By the end of the year, fifty-six Thailand finance houses are closed down.  Led to first ever devaluation of an Asian Crisis currency  Devaluations vis-à-vis the dollar average 20% to 30% in Thailand, Indonesia, Malaysia and the Philippines
  6. 6. • Seven high-profile bankruptcies of Korean conglomerates, such as Hanbo Steel and Kia Motors • The Philippines abandons its dollar-peg Overnight interest rates are raised to 32% • Indonesian authorities close 16 insolvent banks • Malaysia also abandons its pegged exchange rate
  7. 7.  Hong Kong overnight interest rates rise to 280%,  Hang Seng index fall 23% in three days  The largest investment bank in Hong Kong, Peregrine Securities, goes bankrupt
  8. 8.  The IMF organises a $58.2 billion rescue for Korea  The IMF puts together a $17.2 billion Thai rescue  Indonesia finalises a deal with the IMF for funding that could total up to $42.3 billion
  9. 9.  Poor Regulation of the Economy  Over-Inflated Asset Prices  Macroeconomic Policy: Fixed Exchange Rates
  10. 10.  Fall in equity markets, foreign exchange markets and rises in interest rates
  11. 11.  Equity Markets
  12. 12. • Interest rates --- Indonesia 300% … Thailand : tightens monetary policy interest rates peaked at 20% • Real economy --severe contraction in real economic activities --increase in corporate bankruptcies --devaluation & exports
  13. 13.  Financial Assistance : World bank ,ADB  Fiscal & Monetary policy revision  Restructuring  What did it do wrongly?
  14. 14. • negative ‘wealth effect’ on investors across the world Falls in Equity Markets • International Trade :brake on the growth of exports from the major economies . 5% of GDP in Japan, 1½% of GDP in Europe and 3% in the US . • Import side : prices slashed • Foreign Direct Investment : cut back severely • Economic Growth :constant downward revision of economic growth forecasts
  15. 15. • universal tax on currency transactions to deter speculation by the markets • Improve global regulation, which would involve the IMF, the World Bank and other regulators • Creating a process of active and transparent surveillance of borrowing nations • Creating a Code of Best Practice on social policy issues, so that financial crises, if they do occur, do not result in disproportionate increases in poverty within developing countries. • enhancing regional surveillance :ASEAN • the provision of fuller economic and financial information to the public by governments, financial institutions, and corporations
  16. 16. • Financial contagion • How does financial contagion occur? • why is it important, and is there anything that can be done about it? • What do you think caused the Asian crisis? Do you think the affected countries are now on the right track for recovery?
  17. 17. • Following the Asian crisis I would like to ask you whether there are any ways foreign investors/risk managers are able to predict instances of political instability? • Are the hedging of currencies and the use of credit derivatives viable options to avoid losses in the event of currency crises? • Asian crisis v/s subprime : similarities and dissimilarities ?