South East Asian Crisis, 1997

Presented By: Ankit Purohit Bhawana Bothra Bharat Talwar Nikhil Narang Jasleen Setia Tanya Sharma

Place: Bangkok, (Thailand) Year :1997

Thailand
During 1985-96 Average annual growth rate of 9%. Baht was pegged at 25 US$ May97 - Thai Baht was hit by massive speculative attack June97 - Prime Minister refused to devaluate the Baht Thai Government failed to defend the Baht against International speculators

Thailand
Stock market declines by 7% and political instability Finance Minister Resigns Further decline as economy contracts Stock market dropped 75% Finance one collapsed Baht reached 56 US$

But lets begin from the beginning.

Between 1991 and 1997, $94.1 billion dollars flowed in East Asia Income per capita averaged $11,100 Factors that fuelled such growth included: Export promotion Lowered trade barriers Industrial policy High Interest rate

And the story continues...

Foreign Capital Inflows: US in recession -> Low interest rates 50% of capital inflows in Asia Dramatic run-up in Asset prices

Pegged Currencies
Encouraged external borrowing

High exports driving rapid economic growth

Export to GDP ratio grew from 35% to 55%

Excessive exposure to forex movements

The Climax....bubble formation

High investments in infrastructure and acceleration in money supply led to skyrocketing of property prices. Debt-GDP Ratios went upto 180% High Leverage and exposure to forex Dependency on exports Real Estate Speculation US economy recovered from recession Value of US dollar increased Asian currencies pegged to US caused their exports to become expensive and less competitive

The asset bubble

The Climax.... Bubble burst

Asset prices fall Companies start to default Money Lenders panic Credit crunch and bankruptcies Depreciative pressure on exchange rates Government buys excess domestic currency to maintain peg Exhaust foreign reserves Currencies float and drastically deprciate Foreign currency-denominated liabilities grew substantially (in domestic currency terms) More bankruptcies Further deepening of the crisis

The bubble burst

Consequences.......

Countries hit included: Thailand Indonesia South Korea Philippines Malaysia Hong Kong Singapore Taiwan China

Consequences.......
Indonesia

Drastic devaluation of the rupiah: from 2,000 to 18,000 for 1 US$ High Inflation Stock market at its historic lowest Loans became costly Widespread rioting in Jakarta 500 deaths 16 commercial banks close Governor, Bank Indonesia Sacked President steps down after 30 years in power

Consequences.......
South Korea

Won depreciates from 1,000 to 1,700 for 1 US$ Moodys credit rating of country drops A1 to B2 National Debt-to-GDP ratio doubled Excessive debt lead to takeovers Major setback in automobile sector

Consequences.......
Similar stories in Philippines, Japan, Malaysia
Stock prices fall Interest rates jump Companies go bankrupt GDP rates slow down

The Saviour.....IMF

Liquidity infusion by IMF Cutting back of Government spending by the affected nations Change from a Fixed Foreign Exchange rate to a Floating Foreign Exchange rate Focus on domestic consumption Reforms in banking sector controlled and well educated lending Some amount of debt to be absorbed by banks

And the story End....

Thailands Fate

IMF unveiled a $17 billion rescue package, and another bailout package of $3.9 billion subject to conditionality for reorganizing and restructuring, establishing strong regulatory frameworks Tax revenue balanced the budget in 2004, 4 years ahead of schedule Baht reached 33/US$ by 2007