Asian Financial Crisis 1997

Asian Financial Crisis 1997

Asian financial crisis is an epitome of how any economy or region can fall into pit of crisis if they are not careful enough. The Tiger economies of Asia, Thailand, Singapore, Indonesia, Hong Kong, Malaysia and South Korea, suffered one of the greatest economic blow in 1997. These economies were growing by 6 per cent to 9 per cent yearly. Their growth was mainly driven by high export. This growth in Gross Domestic Product was brought to an abrupt end in late 1997. It was later calculated that these economies last about 70 per cent of its stock market and currency value .

The crisis was not because of any one day event. The economy build it year on year for decades and then suddenly one event triggered it off. In

The amount of investment ballooned during 1990s and the quality of all the assets created reduced drastically. Now at this point of time the investors started to stop money flow in these economies and this lead of unemployment and panic started to brew. The crisis got triggered by Thailand’s devaluation of its currency relative to the US dollar. This development, which followed by months of speculative pressures that had substantially depleted Thailand’s official foreign crisis across much of East Asia. Currency traders began attacking the Thai baht’s peg to the U.S. dollar, which proved successful and the currency was eventually floated and devalued. This action of Thailand affected other economies and their currency. Malaysian ringgit, Indonesian rupiah and Singapore dollar all moved sharply lower. All these devaluation further increased already high inflation and a host of problems that spread as wide as South Korea and Japan. All over East Asia, the capital inflows slowed and reversed its direction. The growth started to fall sharply. Government and private banks of these countries came under severe pressure. Investment rates plunged and some Asian countries entered deep

Stock markets of these economies lost as high as 70 per cent of their value. These countries were facing high inflation with constantly decreasing rate of employment and unfavourable balance of payment. After this meltdown of financial market all eyes turned towards IMF. The initial plan of IMF was to lend money to member countries that were experiencing balance of payment problems, and could not maintain the value of their currencies. The idea was that the IMF would provide short term financial loans to troubled countries, giving them time to put their economies in order. IMF loans have always came with strings attached. In the past, most recipients of IMF aid have suffered from excessive government spending, lax monetary policy and high inflation. Consequently, conditions attached to IMF loans have normally required the borrowing country to slash government spending and raise interest rates to slow monetary growth and