5thAPRIL, 2016

FIM Assignment

Asian Crisis 1997

Asian Financial crisis which is also known as Asian Contagion was started from July
1997. The crisis which started from Thailand moved towards Indonesia, South Korea and other
South East Asian countries. Their currency devalued which caused stock market to decline,
import revenues to reduce and disruption in the government.
The main causes of Asian crisis were the large amount of foreign debt and the fixed
exchange rate system. While Asian market was booming, it became an opportunistic market for
the investors who inject large amount of low interest rate foreign fund in the Asia. During this
booming period, Thailand, Indonesia and South Korea were the strongest countries in Asia. So,
these were the countries that attracted huge foreign funds. However, these funds were not
allocated efficiently due weak banking system, corporate governance and lack of financial
transparency. The currencies of these three countries were pegged with U.S. dollar which gave
false sense of security, encouraging them to take on dollar-denominated debt. However, the rise
in the value of U.S. dollar causes the exports of these countries expensive in the global market
which caused export to decline. International Monetary Fund funded $40 billion to stabilize the
situation.
Along with IMF, there has been the role of Asset Management companies to better the
Asian crisis. Asset Management Companies were immediately established to dispose, collect and
restructure nonperforming loans. AMCs helped banks to regain the strength to provide funds in
the economy as their nonperforming loans were transferred to AMCs. So, this resolved the long
extended debt present in the financial system. With the transfer of nonperforming loans, banks
profitability was increasing slowly.

Sweta Singh