Asian economies with the likes of South Korea, Taiwan, Hong Kong, Indonesia, the Philippines, and Thailand

took a plunge
upon the occurrence of the Asian financial crisis. The Asian financial crisis revolved around 4 issues: the shortage of foreign
exchange, underdeveloped financial sectors which were evident in the allocation of capital in different Asian economies, the effects
that the crisis had to the different economies of the world, and lastly, the International Monetary Fund. Before the crisis, it was evident
that Thailand had a promising economy but had weaknesses that were concealed from the public. Such are the countrys efforts to
sustaining a fixed exchange rate. Another was that short-term capital flows were so excessive that it led to a high degree of currency
speculation. And lastly, they did not have a risk management system. Just like Thailand, several other Asian countries also experienced
the same problems.
The economic failure experienced by these Asian countries was largely caused by its high correlation with each others
currencies and its inter-dependence among their economies. This was due to a rise in capital inflows to finance investments, leaving
these economies vulnerable to a financial meltdown, a result of the weakness of their financial systems. This was also evident in
several failures in the relationship between the behavior of the stock markets of these countries during this period as well as the
evolution of their currencies.
The Asian financial crisis began in Thailands economy during an economic high where they experienced rapid economic growth
which averaged ten percent per year, attracting foreign direct investments that built several production plants that paved ways for
exportation to developed economies. Consequently, Thailand began to realize a trade surplus, drawing large amounts of capital
inflows. In addition to this, their currency was pegged to the US dollar, allowing the Baht to move in the same direction as the US
Dollar; as the US Dollar decreases or increases, so does the Baht. This again attracted more foreign investments in Thailand and
effected a quick growth in Thailands GDP. Thus, their rapid economic growth encouraged the Thai government to excessive spending
and credit. Assuming a profit from the lower interest rate, loans were made in US dollars as interest rates were lower the US. But as
the US dollar experienced appreciation, Thailand lost their competitive advantage, resulting into a decline in net exports.
The decline in Thailands net exports led to an abandoning of the US dollar peg to devalue its currency in order to encourage
exports. Despite these efforts, the decrease in export growth provoked a debt crisis. The debt crisis then subsided the international
financial markets confidence in Thailands economy. Investors eventually began to sell their Thai baht on 1997 leaving it to
depreciate from 25 baht per US dollar to 55 baht per US dollar on the first quarter of 1998. Thailands baht experienced fifteen percent
devaluation on 1997, which occurred a month after the bankruptcy of Thailands largest finance company, Finance One. This took on a
domino effect and later devalued other Asian currencies beginning with the Philippine peso, then the Malaysian Ringgit, the
Indonesian Rupiah and then to the Singaporean dollar. The currency crisis then took its toll on Hong Kongs stock market as it
collapsed and sent shock waves not only in Asia but also in the stock markets of Latin America and later on the US stock market.
The Philippine macroeconomy was certainly affected by the 1997 Asian financial crisis. The effect primarily distressed on the
countrys currency, stock market and interest rates because of various factors.
During the 1997 Asian financial crisis, most of the currencies in Asia took a hit because of the devaluation of the Thai baht.
When the Thai government announced the float of their currency on July 2 1997, their currency devalued because of the rising of their
foreign debt. Soon after this, the currencies of the other Asian countries soon followed which includes the Philippine Peso. The
Philippines was plagued with an over valued currency and this highly affected the exports of the country which in turn led to a trade
deficit. Following the devaluation of the Thai baht, foreign investors withdrew their investments from the Philippines, which led to a
large outflow of capital. The Philippines had a balance of payments deficit of 3.5 billion US dollars in 1997, which subsequently
caused a reduction in gross international reserves. Because of the large balance of payment deficit, the peso dropped from 26.2 pesos
per dollar at the start of the crisis to 43.173 pesos in 1998 and down to 54 pesos per dollar. The Philippine government tried to amend
these depreciations by borrowing 2 billion US dollars in order to maintain the exchange rate but these attempts were deemed
unsuccessful. The country took a turn in 1998 by posting a balance of payments surplus of 1.35 billion US dollars and by mid-1999,
the Philippine Peso stabilized between 37 to 38 pesos to a dollar.
The Philippine Stock Market, like most of the stock markets in Asia reflected a loss due to the financial crisis. A month after the
start of the crisis, the Philippine stock market fell by 9.3%, also resulting to a drop of 1000 points from a high 3000 points in 1997. By
the end of 2008, the Philippine stock market was down by 48 percents value-wise. Although the Philippine stock market experienced a
hit during the financial crisis it was considered as one of the relatively least affected among its neighboring countries.
Interests rates in the Philippines were also affected. As interest rates began to rise, several corporations, individuals, and
businessmen had to undergo difficult situations in their savings and investments. Investment in the Philippines declined as a result of
the limitations of investors to accessing capital. In response to this, the Central Bank of the Philippines attempted to fix this setback by
the reducing reserve requirement ratio while the national government took on a reduction in the interest rates on treasury bills. The
interest rate on 91-day Treasury bills dropped from 19.1 percent in January 2008 to 13.4 percent in December 2008. In addition to this,
published loan rates also declined from 30 percent in early 1998 to 18 percent 20 percent in 1999, but due to the uncertainty and the
difficulty in evaluating creditworthiness, banks still struggled to provide credit and capital for investors.