Intro:

Between July 1997 and January 1998, a financial crisis took place and swept through the "tiger
economy" of Southeast Asia. Southeast Asian countries such as Thailand, Malaysia, Singapore,
Indonesia, Hong Kong and South Korea had an impressive economic growth in the past decade.
But this ended when the economic crisis struck, the stock market and the currency exploded,
their currency devalued against the US dollar, forced to ask for Financial support from the
International Monetary Fund (IMF).

The germ of the financial crisis has started in the past decade, as these countries are experiencing
unprecedented economic growth in commercial and residential property, industrial assets, and
infra-structure, but most are financed by bank loans.

In early 1997, due to a combination of excess investment, high loans, and a deficit that began to
pile up, the governments of these countries became more and more difficult to maintain their
money against the US dollar. It was set for a potentially rapid economic meltdown. However, the
leaders of these countries are not always quick to admit the increased nature of their problems.

The cause of the crisis can be said to be a weak macro foundation, Thailand and some Southeast
Asian countries have tried to implement what economists called "impossible trinity". They have
just fixed the value of their money on the US Dollar, allowed to freely circulate capital. Rapid
economic growth creates pressure on domestic currency prices. To protect the fixed exchange
rate, Southeast Asian central banks have implemented a loose monetary policy. As a result,
increased money supply caused inflationary pressures.

Thailand's property market goes bankrupt, people do not believe that the government can keep a
fixed exchange rate, when discovering those weaknesses, speculative attacks have carried out
attacking Asian currency, foreign investors simultaneously withdraw their capital. The
government's ability to handle a crisis very bad, when it was newly attacked, should have been
able to immediately float its currencies rather than trying to protect the exchange rate to run out
State foreign exchange reserves, also make speculation more prolonged.

After experiencing the crisis, to restore the economy, Southeast Asian countries conducted strong
structural reforms. South Korea, Thailand and Indonesia abandoned the anchor exchange rate
regime, attempting to increase foreign exchange reserves. Countries also deleted and reduced bad
debts, re-capitalized financial institutions, developed the market of identifiable bonds in their
local currency. At the same time, the labor market reform has allowed enterprises to recruit and
fire workers more easily, making the enterprises of East Asian countries more flexible.
References
Charles W.L.Hill (n.d.) The Asian Financial Crisis.

Christina Majaski. (Mar 23, 2019), Trilemma Definition.

IMF Staff. (June 2000). Recovery from the Asian Crisis and the Role of the IMF