Asian economic crisis
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The Asian financial crisis was a period of
financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and man ...
that gripped much of
East Asia East Asia is the eastern region of Asia, which is defined in both Geography, geographical and culture, ethno-cultural terms. The modern State (polity), states of East Asia include China, Japan, Mongolia, North Korea, South Korea, and Taiwan. ...
and
Southeast Asia Southeast Asia, also spelled South East Asia and South-East Asia, and also known as Southeastern Asia, South-eastern Asia or SEA, is the geographical south-eastern region of Asia, consisting of the regions that are situated south of mainlan ...
beginning in July 1997 and raised fears of a worldwide economic meltdown due to
financial contagion Financial contagion refers to "the spread of market disturbances mostly on the downside from one country to the other, a process observed through co-movements in exchange rates, stock prices, sovereign spreads, and capital flows". Financial contag ...
. However, the recovery in 1998–1999 was rapid and worries of a meltdown subsided. The crisis started in
Thailand Thailand ( ), historically known as Siam () and officially the Kingdom of Thailand, is a country in Southeast Asia, located at the centre of the Indochinese Peninsula, spanning , with a population of almost 70 million. The country is b ...
(known in Thailand as the ''
Tom Yam Kung Tom yum or tom yam (, ; th, ต้มยำ, ) is a type of hot and sour Thai soup, usually cooked with shrimp (prawn). The words "tom yam" are derived from two Thai words. ''Tom'' refers to the boiling process, while ''yam'' means 'mixed'. ...
crisis''; th, วิกฤตต้มยำกุ้ง) on 2 July, with the financial collapse of the
Thai baht The baht (; th, บาท, ; sign: ฿; code: THB) is the official currency of Thailand. It is divided into 100 ''satang'' (, ). The issuance of currency is the responsibility of the Bank of Thailand. SWIFT ranked the Thai baht as the 10th-mos ...
after the Thai government was forced to
float Float may refer to: Arts and entertainment Music Albums * ''Float'' (Aesop Rock album), 2000 * ''Float'' (Flogging Molly album), 2008 * ''Float'' (Styles P album), 2013 Songs * "Float" (Tim and the Glory Boys song), 2022 * "Float", by Bush ...
the baht due to lack of
foreign currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general de ...
to support its currency peg to the
U.S. dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
.
Capital flight Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of a political event such as regime change or economic globalization. Such events could be an increa ...
ensued almost immediately, beginning an international chain reaction. At the time, Thailand had acquired a burden of foreign debt. As the crisis spread, most of Southeast Asia and later South Korea and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in
private debt In economics, consumer debt is the amount owed by consumers (as opposed to amounts owed by businesses or governments). It includes debts incurred on purchase of goods that are consumable and/or do not appreciate. In macroeconomic terms, it is ...
.
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korean Peninsula and sharing a land border with North Korea. Its western border is formed by the Yellow Sea, while its eas ...
,
Indonesia Indonesia, officially the Republic of Indonesia, is a country in Southeast Asia and Oceania between the Indian and Pacific oceans. It consists of over 17,000 islands, including Sumatra, Java, Sulawesi, and parts of Borneo and New Guine ...
and
Thailand Thailand ( ), historically known as Siam () and officially the Kingdom of Thailand, is a country in Southeast Asia, located at the centre of the Indochinese Peninsula, spanning , with a population of almost 70 million. The country is b ...
were the countries most affected by the crisis.
Hong Kong Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delta i ...
, Laos,
Malaysia Malaysia ( ; ) is a country in Southeast Asia. The federation, federal constitutional monarchy consists of States and federal territories of Malaysia, thirteen states and three federal territories, separated by the South China Sea into two r ...
and the
Philippines The Philippines (; fil, Pilipinas, links=no), officially the Republic of the Philippines ( fil, Republika ng Pilipinas, links=no), * bik, Republika kan Filipinas * ceb, Republika sa Pilipinas * cbk, República de Filipinas * hil, Republ ...
were also hurt by the slump.
Brunei Brunei ( , ), formally Brunei Darussalam ( ms, Negara Brunei Darussalam, Jawi: , ), is a country located on the north coast of the island of Borneo in Southeast Asia. Apart from its South China Sea coast, it is completely surrounded by t ...
,
mainland China "Mainland China" is a geopolitical term defined as the territory governed by the People's Republic of China (including islands like Hainan or Chongming), excluding dependent territories of the PRC, and other territories within Greater China. ...
,
Singapore Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, bor ...
,
Taiwan Taiwan, officially the Republic of China (ROC), is a country in East Asia, at the junction of the East and South China Seas in the northwestern Pacific Ocean, with the People's Republic of China (PRC) to the northwest, Japan to the nort ...
, and
Vietnam Vietnam or Viet Nam ( vi, Việt Nam, ), officially the Socialist Republic of Vietnam,., group="n" is a country in Southeast Asia, at the eastern edge of mainland Southeast Asia, with an area of and population of 96 million, making i ...
were less affected, although all suffered from a loss of demand and confidence throughout the region. Japan was also affected, though less significantly. Foreign debt-to-GDP ratios rose from 100% to 167% in the four large
Association of Southeast Asian Nations ASEAN ( , ), officially the Association of Southeast Asian Nations, is a political and economic union of 10 member states in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, militar ...
(ASEAN) economies in 1993–96, then shot up beyond 180% during the worst of the crisis. In South Korea, the ratios rose from 13% to 21% and then as high as 40%, while the other northern
newly industrialized countries The category of newly industrialized country (NIC), newly industrialized economy (NIE) or middle income country is a socioeconomic classification applied to several countries around the world by political scientists and economists. They represent ...
fared much better. Only in Thailand and South Korea did debt service-to-exports ratios rise. Although most of the governments of Asia had seemingly sound fiscal policies, the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF) stepped in to initiate a $40 billion program to stabilize the currencies of South Korea, Thailand, and Indonesia, economies particularly hard hit by the crisis. The efforts to stem a global economic crisis did little to stabilize the domestic situation in Indonesia, however. After 30 years in power, Indonesian President Suharto was forced to step down on 21 May 1998 in the wake of widespread rioting that followed sharp price increases caused by a drastic devaluation of the
rupiah The rupiah (symbol: Rp; currency code: IDR) is the official currency of Indonesia. It is issued and controlled by Bank Indonesia. The name " rupiah" is derived from the Sanskrit word for silver, (). Sometimes, Indonesians also informally use ...
. The effects of the crisis lingered through 1998. In 1998, growth in the Philippines dropped to virtually zero. Only Singapore and Taiwan proved relatively insulated from the shock, but both suffered serious hits in passing, the former due to its size and geographical location between Malaysia and Indonesia. By 1999, however, analysts saw signs that the economies of Asia were beginning to recover. After the crisis, economies in the region worked toward financial stability and better financial supervision. Until 1999, Asia attracted almost half of the total capital inflow into
developing countries A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
. The economies of Southeast Asia in particular maintained high interest rates attractive to foreign investors looking for a high
rate of return In finance, return is a profit on an investment. It comprises any change in value of the investment, and/or cash flows (or securities, or other investments) which the investor receives from that investment, such as interest payments, coupons, cas ...
. As a result, the region's economies received a large inflow of money and experienced a dramatic run-up in asset prices. At the same time, the regional economies of Thailand, Malaysia, Indonesia, Singapore and South Korea experienced high growth rates, of 8–12% GDP, in the late 1980s and early 1990s. This achievement was widely acclaimed by financial institutions including IMF and
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
, and was known as part of the " Asian economic miracle".


Credit bubbles and fixed currency exchange rates

The causes of the debacle are many and disputed. Thailand's economy developed into an economic bubble fueled by
hot money In economics, hot money is the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts. These speculative capital flows are called "hot money" b ...
. More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia and Indonesia, which had the added complication of what was called "
crony capitalism Crony capitalism, sometimes called cronyism, is an economic system in which businesses thrive not as a result of free enterprise, but rather as a return on money amassed through collusion between a business class and the political class. This i ...
". The short-term capital flow was expensive and often highly conditioned for quick profit. Development money went in a largely uncontrolled manner to certain people only – not necessarily the best suited or most efficient, but those closest to the centers of power. Weak corporate governance also led to inefficient investment and declining profitability. In the mid-1990s, Thailand, Indonesia and South Korea had large private current account deficits, and the maintenance of
fixed exchange rate A fixed exchange rate, often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a basket of other currencies, or another ...
s encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors. In the mid-1990s, a series of external shocks began to change the economic environment. The
devaluation In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national curre ...
of the Chinese renminbi, and the Japanese
yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the e ...
due to the
Plaza Accord The Plaza Accord was a joint–agreement signed on September 22, 1985, at the Plaza Hotel in New York City, between France, West Germany, Japan, the United Kingdom, and the United States, to depreciate the U.S. dollar in relation to the French ...
of 1985, the raising of U.S. interest rates which led to a strong U.S. dollar, and the sharp decline in semiconductor prices, all adversely affected their growth. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under
Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. ...
began to raise U.S. interest rates to head off
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
. This made the United States a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At the same time, Southeast Asia's export growth slowed dramatically in the spring of 1996, deteriorating their current account position. Some economists have advanced the growing exports of China as a factor contributing to ASEAN nations' export growth slowdown, though these economists maintain the main cause of their crises was excessive real estate speculation. China had begun to compete effectively with other Asian exporters particularly in the 1990s after the implementation of a number of export-oriented reforms. Other economists dispute China's impact, noting that both ASEAN and China experienced simultaneous rapid export growth in the early 1990s. Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. The resulting large quantities of
credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
that became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level, particularly those in non-productive sectors of the economy such as real-estate. These asset prices eventually began to collapse, causing individuals and companies to default on debt obligations.


Panic among lenders and withdrawal of credit

The resulting panic among lenders led to a large withdrawal of credit from the crisis countries, causing a
credit crunch A credit crunch (also known as a credit squeeze, credit tightening or credit crisis) is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from banks. A credit cr ...
and further bankruptcies. In addition, as foreign investors attempted to withdraw their money, the exchange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels (to help diminish
flight of capital Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of a political event such as regime change or economic globalization. Such events could be an increas ...
by making lending more attractive to investors) and intervened in the exchange market, buying up any excess domestic currency at the
fixed exchange rate A fixed exchange rate, often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a basket of other currencies, or another ...
with
foreign reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
. Neither of these policy responses could be sustained for long, as several countries had insufficient levels of foreign exchange reserves. Very high interest rates, which can be extremely damaging to a healthy economy, wreaked further havoc on economies in an already fragile state, while the central banks were hemorrhaging foreign reserves, of which they had finite amounts. When it became clear that the tide of capital fleeing these countries was not to be stopped, the authorities ceased defending their fixed exchange rates and allowed their currencies to
float Float may refer to: Arts and entertainment Music Albums * ''Float'' (Aesop Rock album), 2000 * ''Float'' (Flogging Molly album), 2008 * ''Float'' (Styles P album), 2013 Songs * "Float" (Tim and the Glory Boys song), 2022 * "Float", by Bush ...
. The resulting depreciated value of those currencies meant that foreign currency-denominated liabilities grew substantially in domestic currency terms, causing more bankruptcies and further deepening the crisis. Other economists, including Joseph Stiglitz and
Jeffrey Sachs Jeffrey David Sachs () (born 5 November 1954) is an American economist, academic, public policy analyst, and former director of The Earth Institute at Columbia University, where he holds the title of University Professor. He is known for his work ...
, have downplayed the role of the real economy in the crisis compared to the financial markets. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic bank run prompted by a sudden risk shock. Sachs pointed to strict monetary and contractionary fiscal policies implemented by the governments on the advice of the IMF in the wake of the crisis, while
Frederic Mishkin Frederic Stanley "Rick" Mishkin (born January 11, 1951) is an American economist and Alfred Lerner professor of Banking and Financial Institutions at the Graduate School of Business, Columbia University. He was a member of the Federal Reserve Boa ...
points to the role of asymmetric information in the financial markets that led to a "
herd mentality Herd mentality, mob mentality or pack mentality describes how people can be influenced by their peers to adopt certain behaviors on a largely emotional, rather than rational, basis. When individuals are affected by mob mentality, they may make dif ...
" among investors that magnified a small risk in the real economy. The crisis has thus attracted attention from
behavioral economists Behavior (American English) or behaviour (British English) is the range of actions and mannerisms made by individuals, organisms, systems or artificial entities in some environment. These systems can include other systems or organisms as wel ...
interested in market psychology. Another possible cause of the sudden risk shock may also be attributable to the handover of Hong Kong sovereignty on 1 July 1997. During the 1990s, hot money flew into the Southeast Asia region through
financial hub A financial centre (British English, BE), financial center (American English, AE), or financial hub, is a location with a concentration of Global financial system#Participants, participants in banking, asset management, insurance or financial ...
s, especially Hong Kong. The investors were often ignorant of the actual fundamentals or risk profiles of the respective economies, and once the crisis gripped the region, the political uncertainty regarding the future of Hong Kong as an Asian financial centre led some investors to withdraw from Asia altogether. This shrink in investments only worsened the financial conditions in Asia (subsequently leading to the depreciation of the
Thai baht The baht (; th, บาท, ; sign: ฿; code: THB) is the official currency of Thailand. It is divided into 100 ''satang'' (, ). The issuance of currency is the responsibility of the Bank of Thailand. SWIFT ranked the Thai baht as the 10th-mos ...
on 2 July 1997). Several case studies on the topic of the application of network analysis of a financial system help to explain the
interconnectivity In telecommunications, interconnection is the physical linking of a carrier's network with equipment or facilities not belonging to that network. The term may refer to a connection between a carrier's facilities and the equipment belonging t ...
of
financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial market ...
s, as well as the significance of the
robustness Robustness is the property of being strong and healthy in constitution. When it is transposed into a system, it refers to the ability of tolerating perturbations that might affect the system’s functional body. In the same line ''robustness'' ca ...
of hubs (or main nodes).
Albert-László Barabási Albert-László Barabási (born March 30, 1967) is a Romanian-born Hungarian-American physicist, best known for his discoveries in network science and network medicine. He is Distinguished University Professor and Robert Gray Professor of Netw ...
"Unfolding the science behind the idea of six degrees of separation"
by Andrew Sheng, Adj. Prof.,
Tsinghua University Tsinghua University (; abbr. THU) is a national public research university in Beijing, China. The university is funded by the Ministry of Education. The university is a member of the C9 League, Double First Class University Plan, Projec ...
and
University of Malaya The University of Malaya ( ms, Universiti Malaya, UM; abbreviated as UM or informally the Malayan University) is a public research university located in Kuala Lumpur, Malaysia. It is the oldest and highest ranking Malaysian institution of highe ...
University of Chicago Any negative externalities in the hubs creates a ripple effect through the financial system and the economy (as well as any connected economies) as a whole.
Albert-László Barabási Albert-László Barabási (born March 30, 1967) is a Romanian-born Hungarian-American physicist, best known for his discoveries in network science and network medicine. He is Distinguished University Professor and Robert Gray Professor of Netw ...
"Unfolding the science behind the idea of six degrees of separation"
by Andrew Sheng, Adj. Prof.,
Tsinghua University Tsinghua University (; abbr. THU) is a national public research university in Beijing, China. The university is funded by the Ministry of Education. The university is a member of the C9 League, Double First Class University Plan, Projec ...
and
University of Malaya The University of Malaya ( ms, Universiti Malaya, UM; abbreviated as UM or informally the Malayan University) is a public research university located in Kuala Lumpur, Malaysia. It is the oldest and highest ranking Malaysian institution of highe ...
The foreign ministers of the 10 ASEAN countries believed that the well co-ordinated manipulation of their currencies was a deliberate attempt to destabilize the ASEAN economies. Malaysian Prime Minister Mahathir Mohamad accused
George Soros George Soros ( name written in eastern order), (born György Schwartz, August 12, 1930) is a Hungarian-American businessman and philanthropist. , he had a net worth of US$8.6 billion, Note that this site is updated daily. having donated mo ...
of ruining Malaysia's economy with "massive currency speculation". Soros claims to have been a buyer of the ringgit during its fall, having sold it short in 1997. At the 30th ASEAN Ministerial Meeting held in Subang Jaya, Malaysia, the foreign ministers issued a joint declaration on 25 July 1997 expressing serious concern and called for further intensification of ASEAN's cooperation to safeguard and promote ASEAN's interest in this regard. Coincidentally, on that same day, the central bankers of most of the affected countries were at the EMEAP (Executive Meeting of East Asia Pacific) meeting in Shanghai, and they failed to make the "New Arrangement to Borrow" operational. A year earlier, the finance ministers of these same countries had attended the 3rd
APEC The Asia-Pacific Economic Cooperation (APEC ) is an inter-governmental forum for 21 member economies in the Pacific Rim that promotes free trade throughout the Asia-Pacific region.
finance ministers meeting in
Kyoto Kyoto (; Japanese language, Japanese: , ''Kyōto'' ), officially , is the capital city of Kyoto Prefecture in Japan. Located in the Kansai region on the island of Honshu, Kyoto forms a part of the Keihanshin, Keihanshin metropolitan area along wi ...
, Japan, on 17 March 1996, and according to that joint declaration, they had been unable to double the amounts available under the "General Agreement to Borrow" and the "Emergency Finance Mechanism".


IMF role

The scope and the severity of the collapses led to an urgent need for outside intervention. Since the countries melting down were among the richest in their region, and in the world, and since hundreds of billions of dollars were at stake, any response to the crisis was likely to be cooperative and international. The
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
created a series of
bailouts A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy. A bailout differs from the term ''bail-in'' (coined in 2010) under which the bondholders or depositors of global syst ...
("rescue packages") for the most-affected economies to enable them to avoid default, tying the packages to currency, banking and financial system reforms. Due to IMF's involvement in the financial crisis, the term IMF Crisis became a way to refer to the Asian Financial Crisis in countries that were affected.


Economic reforms

The IMF's support was conditional on a series of economic reforms, the " structural adjustment package" (SAP). The SAPs called on crisis-struck nations to reduce government spending and deficits, allow
insolvent In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet i ...
banks and financial institutions to fail, and aggressively raise interest rates. The reasoning was that these steps would restore confidence in the nations' fiscal
solvency Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity. Solvency can also be described as the ability of a corporation to meet its long-t ...
, penalize insolvent companies, and protect currency values. Above all, it was stipulated that IMF-funded capital had to be administered rationally in the future, with no favored parties receiving funds by preference. In at least one of the affected countries the restrictions on foreign ownership were greatly reduced. There were to be adequate government controls set up to supervise all financial activities, ones that were to be independent, in theory, of private interest. Insolvent institutions had to be closed, and insolvency itself had to be clearly defined. In addition, financial systems were to become "transparent", that is, provide the kind of financial information used in the West to make financial decisions. As countries fell into crisis, many local businesses and governments that had taken out loans in US dollars, which suddenly became much more expensive relative to the local currency which formed their earned income, found themselves unable to pay their creditors. The dynamics of the situation were similar to that of the Latin American debt crisis. The effects of the SAPs were mixed and their impact controversial. Critics, however, noted the contractionary nature of these policies, arguing that in a
recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...
, the traditional
Keynesian Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output an ...
response was to increase government spending, prop up major companies, and lower interest rates. The reasoning was that by stimulating the economy and staving off recession, governments could restore confidence while preventing economic loss. They pointed out that the U.S. government had pursued expansionary policies, such as lowering interest rates, increasing government spending, and cutting taxes, when the United States itself entered a recession in 2001, and arguably the same in the fiscal and monetary policies during the 2008–2009 Global Financial Crisis. Many commentators in retrospect criticized the IMF for encouraging the developing economies of Asia down the path of "fast-track capitalism", meaning liberalization of the financial sector (elimination of restrictions on capital flows), maintenance of high domestic interest rates to attract
portfolio investment Portfolio investments are investments in the form of a group (portfolio) of assets, including transactions in equity, securities, such as common stock, and debt securities, such as banknotes, bonds, and debentures. Portfolio investments are pa ...
and bank capital, and pegging of the national currency to the dollar to reassure foreign investors against currency risk.


IMF and high interest rates

The conventional high-interest-rate economic strategy is normally employed by monetary authorities to attain the chain objectives of tightened
money supply In macroeconomics, the money supply (or money stock) refers to the total volume of currency held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circul ...
, discouraged currency speculation, stabilized exchange rate, curbed currency depreciation, and ultimately contained
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
. In the Asian meltdown, highest IMF officials rationalized their prescribed high interest rates as follows: From then IMF First Deputy managing director, Stanley Fischer in 1998:
When their governments "approached the IMF, the reserves of Thailand and South Korea were perilously low, and the Indonesian Rupiah was excessively depreciated. Thus, the first order of business was... to restore confidence in the currency. To achieve this, countries have to make it more attractive to hold domestic currency, which in turn, requires increasing interest rates temporarily, even if higher interest costs complicate the situation of weak banks and corporations... Why not operate with lower interest rates and a greater devaluation? This is a relevant tradeoff, but there can be no question that the degree of devaluation in the Asian countries is excessive, both from the viewpoint of the individual countries, and from the viewpoint of the international system. Looking first to the individual country, companies with substantial foreign currency debts, as so many companies in these countries have, stood to suffer far more from… currency (depreciation) than from a temporary rise in domestic interest rates…. Thus, on macroeconomics… monetary policy has to be kept tight to restore confidence in the currency....
From the then IMF managing director
Michel Camdessus Michel Camdessus (born 1 May 1933) is a French economist who served as the seventh managing director of the International Monetary Fund (IMF) from 1987 to 2000, the longest serving in that position. He previously served as the Governor of the Ba ...
:
To reverse (currency depreciation), countries have to make it more attractive to hold domestic currency, and that means temporarily raising interest rates, even if this (hurts) weak banks and corporations.


Countries/Regions affected


Thailand

From 1985 to 1996, Thailand's economy grew at an average of over 9% per year, the highest economic growth rate of any country at the time. Inflation was kept reasonably low within a range of 3.4–5.7%. The baht was pegged at 25 to the U.S. dollar. On 14 and 15 May 1997, the
Thai baht The baht (; th, บาท, ; sign: ฿; code: THB) is the official currency of Thailand. It is divided into 100 ''satang'' (, ). The issuance of currency is the responsibility of the Bank of Thailand. SWIFT ranked the Thai baht as the 10th-mos ...
was hit by massive speculative attacks. On 30 June 1997, Prime Minister
Chavalit Yongchaiyudh Chavalit Yongchaiyudh ( th, ชวลิต ยงใจยุทธ, , ; born 15 May 1932), also known as "Big Jiew" (, , ), is a Thai politician and retired army officer. From 1986 to 1990 he was the List of Commanders of the Royal Thai Army, ...
said that he would not devalue the baht. However, Thailand lacked the foreign reserves to support the USD–Baht currency peg, and the Thai government was eventually forced to float the Baht, on 2 July 1997, allowing the value of the Baht to be set by the currency market. This caused a chain reaction of events, eventually culminating into a region-wide crisis. Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in the countryside and 600,000 foreign workers being sent back to their home countries. The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 56 units to the U.S. dollar in January 1998. The Thai stock market dropped 75%. Finance One, the largest Thai finance company until then, collapsed. On 11 August 1997, the IMF unveiled a rescue package for Thailand with more than $17 billion, subject to conditions such as passing laws relating to bankruptcy (reorganizing and restructuring) procedures and establishing strong regulation frameworks for banks and other financial institutions. The IMF approved on 20 August 1997, another bailout package of $2.9 billion. Poverty and inequality increased while employment, wages and social welfare all declined as a result of the crisis. Following the 1997 Asian financial crisis, income in the northeast, the poorest part of the country, rose by 46 percent from 1998 to 2006. Nationwide poverty fell from 21.3 to 11.3 percent. Thailand's Gini coefficient, a measure of
income inequality There are wide varieties of economic inequality, most notably income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of we ...
, fell from .525 in 2000 to .499 in 2004 (it had risen from 1996 to 2000) versus 1997 Asian financial crisis. By 2001, Thailand's economy had recovered. The increasing tax revenues allowed the country to balance its budget and repay its debts to the IMF in 2003, four years ahead of schedule. The Thai baht continued to appreciate to 29 Baht to the U.S. dollar in October 2010.


Indonesia

In June 1997, Indonesia seemed far from crisis. Unlike Thailand, Indonesia had low inflation, a trade surplus of more than $900 million, huge foreign exchange reserves of more than $20 billion, and a good banking sector. However, a large number of Indonesian corporations had been borrowing in U.S. dollars. This practice had worked well for these corporations during the preceding years, as the
rupiah The rupiah (symbol: Rp; currency code: IDR) is the official currency of Indonesia. It is issued and controlled by Bank Indonesia. The name " rupiah" is derived from the Sanskrit word for silver, (). Sometimes, Indonesians also informally use ...
had strengthened respective to the dollar; their effective levels of debt and financing costs had decreased as the local currency's value rose. In July 1997, when Thailand floated the baht, Indonesia's monetary authorities widened the rupiah currency trading band from 8% to 12%. As a result, the rupiah suddenly came under severe attack in August. Therefore, on the 14th of the month, the managed floating exchange regime was replaced by a free-floating exchange rate arrangement. The rupiah dropped further due to the shift. The IMF came forward with a rescue package of $23 billion, but the rupiah was sinking further amid fears over corporate debts, massive selling of rupiah, and strong demand for dollars. The rupiah and the
Jakarta Stock Exchange Jakarta Stock Exchange (JSX) ( Indonesian: Bursa Efek Jakarta (BEJ)) was a stock exchange based in Jakarta, Indonesia, before it merged with the Surabaya Stock Exchange to form the Indonesia Stock Exchange. History Originally opened in 1912 und ...
touched a historic low in September.
Moody's Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Investors Service provides internationa ...
eventually downgraded Indonesia's long-term debt to "
junk bond In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit events ...
". Although the rupiah crisis began in July and August 1997, it intensified in November when the effects of that summer devaluation showed up on corporate balance sheets. Companies that had borrowed in dollars had to face the higher costs imposed upon them by the rupiah's decline, and many reacted by buying dollars through selling rupiah, undermining the value of the latter further. Before the crisis, the exchange rate between the rupiah and the dollar was roughly 2,600 rupiah to 1 U.S. dollar. The rate plunged to over 11,000 rupiah to 1 U.S. dollar on 9 January 1998, with spot rates over 14,000 during 23–26 January and trading again over 14,000 for about six weeks during June–July 1998. On 31 December 1998, the rate was almost exactly 8,000 to 1 U.S. dollar. Indonesia lost 13.5% of its GDP that year. In February 1998, President Suharto sacked the incumbent Bank Indonesia governor, J. Soedradjad Djiwandono, but this proved insufficient. Amidst widespread rioting in May 1998, Suharto resigned under public pressure and Vice President
B. J. Habibie Bacharuddin Jusuf Habibie (; 25 June 1936 – 11 September 2019) was an Indonesian engineer and politician who was the third president of Indonesia from 1998 to 1999. Less than three months after his inauguration as the seventh vice preside ...
replaced him. As a result of the financial crisis that hit the country, many factors arising from all aspects, including sports broadcasting on Indonesian television, including: * ANTV lost their television rights to broadcast the 1998 Formula One World Championship despite their Formula One broadcasting rights contract in Indonesia lasting until 1999; as a result, the 1998 season was not aired on Indonesian television.
RCTI RCTI (''Rajawali Citra Televisi Indonesia'') is a West Jakarta-based Indonesian free-to-air television network. It is best known for its soap operas, celebrity bulletins, news, and sports programmes. It was first launched in 1989, origina ...
finally re-secured the broadcast rights for the season. *ANTV also stopped the coverage of 1997-98 Serie A, 1997-98 Bundesliga, and the 1997-98 La Liga, before the end of their respective seasons. However, it did not affect the 1997-98 FA Premier League, as they had already broadcast it up to the end of the season. *All television stations have limited broadcast schedules, with an average ending broadcast hour at 11:30 PM or 12:00 AM. Additionally, the Indonesian motorcycle Grand Prix, which was held at Sentul, was dropped from the 1998
Superbike A sport bike (sports motorcycle, or sports bike) is a motorcycle designed and optimized for speed, acceleration, braking, and cornering on asphalt concrete race tracks and roads. They are mainly designed for performance at the expense of comfor ...
and MotoGP calendars.
World Rally Championship The World Rally Championship (abbreviated as WRC) is the highest level of global competition in the motorsport discipline of rallying, owned and governed by the FIA. There are separate championships for drivers, co-drivers, manufacturers and t ...
also dropped the
Rally Indonesia Rally of Indonesia (also known as the Indonesia Rally) is the largest rallying event held in Indonesia. Currently part of the Asia Pacific Rally Championship (APRC), it has twice been incorporated into the World Rally Championship (WRC) calendar, i ...
from their 1998 calendar.


South Korea

The banking sector was burdened with
non-performing loan A non-performing loan (NPL) is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full. Non-performing loans represent a major challenge for the banking sector, as it reduces the profitability of banks, and ...
s as its large corporations were funding aggressive expansions. During that time, there was a haste to build great conglomerates to compete on the world stage. Many businesses ultimately failed to ensure returns and profitability. The chaebol, South Korean conglomerates, simply absorbed more and more capital investment. Eventually, excess debt led to major failures and takeovers. Amongst other stimuli, the crisis resulted in the bankruptcy of major Korean companies, provoking not only corporations, but also government officials towards corruption. The Hanbo scandal of early 1997 exposed South Koreas economic weaknesses and corruption problems to the international financial community. Later that year, in July, South Korea's third-largest car maker,
Kia Motors Kia Corporation, commonly known as Kia (, ; formerly known as Kyungsung Precision Industry and Kia Motors Corporation), is a South Korean multinational automobile manufacturer headquartered in Seoul, South Korea. It is South Korea's second lar ...
, asked for emergency loans. The domino effect of collapsing large South Korean companies drove the interest rates up and international investors away. In the wake of the Asian market downturn, Moody's lowered the
credit rating A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting. ...
of South Korea from A1 to A3, on 28 November 1997, and downgraded again to B2 on 11 December. That contributed to a further decline in South Korean shares since stock markets were already bearish in November. The Seoul stock exchange fell by 4% on 7 November 1997. On 8 November, it plunged by 7%, its biggest one-day drop to that date. And on 24 November, stocks fell a further 7.2% on fears that the IMF would demand tough reforms. In 1998, Hyundai Motor Company took over Kia Motors. Samsung Motors' $5 billion venture was dissolved due to the crisis, and eventually
Daewoo Daewoo ( ; Hangul: , Hanja: , ; literally "great universe" and a portmanteau of "dae" meaning great, and the given name of founder and chairman Kim Woo-choong) also known as the Daewoo Group, was a major South Korean chaebol (type of conglomerat ...
Motors was sold to the American company General Motors (GM). The
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF) provided US$58.4 billion as a bailout package. In return, Korea was required to take restructuring measures. The ceiling on foreign investment in Korean companies was raised from 26 percent to 100 percent. In addition, the Korean government started financial sector reform program. Under the program, 787 insolvent financial institutions were closed or merged by June 2003. The number of financial institutions in which foreign investors invested has increased rapidly. Examples include New Bridge Capital's takeover of Korea First Bank. The South Korean won, meanwhile, weakened to more than 1,700 per U.S. dollar from around 800, but later managed to recover. However, like the chaebol, South Korea's government did not escape unscathed. Its national debt-to-GDP ratio more than doubled (approximately 13% to 30%) as a result of the crisis.


Philippines

In May 1997, the
Bangko Sentral ng Pilipinas The Bangko Sentral ng Pilipinas (; commonly abbreviated as BSP in both Filipino and English) is the central bank of the Philippines. It was established on July 3, 1993, pursuant to the provision of Republic Act 7653 or the New Central Bank Ac ...
, the country's central bank, raised interest rates by 1.75 percentage points and again by 2 points on 19 June. Thailand triggered the crisis on 2 July and on 3 July, the Bangko Sentral intervened to defend the
peso The peso is the monetary unit of several countries in the Americas, and the Philippines. Originating in the Spanish Empire, the word translates to "weight". In most countries the peso uses the same sign, "$", as many currencies named "dollar" ...
, raising the overnight rate from 15% to 32% at the onset of the Asian crisis in mid-July 1997. The peso dropped from 26 pesos per dollar at the start of the crisis to 46.50 pesos in early 1998 to 53 pesos as in July 2001. The Philippine GDP contracted by 0.6% during the worst part of the crisis, but grew by 3% by 2001, despite scandals of the administration of
Joseph Estrada Joseph Ejercito Estrada, (; born Jose Marcelo Ejercito; April 19, 1937), also known by the nickname Erap, is a Filipino politician and former actor. He served as the 13th president of the Philippines from 1998 to 2001, the 9th vice presi ...
in 2001, most notably the "jueteng" scandal, causing the
PSE Composite Index The PSE Composite Index, commonly known previously as the PHISIX and currently as the PSEi, is a stock market index of the Philippine Stock Exchange consisting of 30 companies. As the PSE's only broad-base index, it is frequently seen as an ind ...
, the main index of the Philippine Stock Exchange, to fall to 1,000 points from a high of 3,448 points in 1997. The peso's value declined to around 55.75 pesos to the U.S. dollar. Later that year, Estrada was on the verge of impeachment but his allies in the senate voted against continuing the proceedings. This led to popular protests culminating in the " EDSA II Revolution", which effected his resignation and elevated
Gloria Macapagal Arroyo Maria Gloria Macaraeg Macapagal Arroyo (, born April 5, 1947), often referred to by her initials GMA, is a Filipino academic and politician serving as one of the House Deputy Speakers since 2022, and previously from 2016 to 2017. She previously ...
to the presidency. Arroyo lessened the crisis in the country. The Philippine peso rose to about 50 pesos by the year's end and traded at around 41 pesos to a dollar in late 2007. The stock market also reached an all-time high in 2007 and the economy was growing by more than 7 percent, its highest in nearly two decades.


China

China's nonconvertible capital account and its foreign exchange control were decisive in limiting the impact of the crisis. The Chinese currency, the renminbi (RMB), had been pegged in 1994 to the
U.S. dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
at a ratio of 8.3 RMB to the dollar. Having largely kept itself above the fray throughout 1997–1998, there was heavy speculation in the Western press that China would soon be forced to devalue its currency to protect the competitiveness of its exports vis-a-vis those of the
ASEAN ASEAN ( , ), officially the Association of Southeast Asian Nations, is a political and economic union of 10 member states in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, militar ...
nations, whose exports became cheaper relative to China's. However, the RMB's non-
convertibility Convertibility is the quality that allows money or other financial instruments to be converted into other liquid stores of value. Convertibility is an important factor in international trade, where instruments valued in different currencies mus ...
protected its value from currency speculators, and the decision was made to maintain the peg of the currency, thereby improving the country's standing within Asia. The currency peg was partly scrapped in July 2005, rising 2.3% against the dollar, reflecting pressure from the United States. Unlike investments of many of the Southeast Asian nations, almost all of China's foreign investment took the form of factories on the ground rather than securities, which insulated the country from rapid
capital flight Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of a political event such as regime change or economic globalization. Such events could be an increa ...
. While China was unaffected by the crisis compared to Southeast Asia and South Korea, GDP growth slowed sharply in 1998 and 1999, calling attention to structural problems within its economy. In particular, the Asian financial crisis convinced the
Chinese government The Government of the People's Republic of China () is an authoritarian political system in the People's Republic of China under the exclusive political leadership of the Chinese Communist Party (CCP). It consists of legislative, executive, m ...
of the need to resolve the issues of its enormous financial weaknesses, such as having too many
non-performing loans A non-performing loan (NPL) is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full. Non-performing loans represent a major challenge for the banking sector, as it reduces the profitability of banks, and ...
within its banking system, and relying heavily on trade with the United States.


Hong Kong

In October 1997, the
Hong Kong dollar The Hong Kong dollar (, sign: HK$; code: HKD) is the official currency of the Hong Kong Special Administrative Region. It is subdivided into 100 cents or 1000 mils. The Hong Kong Monetary Authority is the monetary authority of Hong Kong ...
, which had been pegged at 7.8 to the U.S. dollar since 1983, came under speculative pressure because Hong Kong's inflation rate had been significantly higher than the United States' for years. Monetary authorities spent more than $1 billion to defend the local currency. Since Hong Kong had more than $80 billion in
foreign reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
, which is equivalent to 700% of its M1 money supply and 45% of its M3 money supply, the Hong Kong Monetary Authority (effectively the region's central bank) managed to maintain the peg. Stock markets became more and more volatile; between 20 and 23 October the Hang Seng Index dropped 23%. The Hong Kong Monetary Authority then promised to protect the currency. On 23 October 1997, it raised overnight interest rates from 8% to 23%, and at one point to '280%'.The HKMA had recognized that speculators were taking advantage of the city's unique currency-board system, in which overnight rates(
HIBOR Hong Kong Inter-bank Offered Rate, (or HIBOR, Chinese: 香港銀行同業拆息), is the annualized rate charged for inter-bank lending on Hong Kong Dollar (HKD) denominated instruments, for a specified period ranging from overnight to one year. ...
) automatically increase in proportion to large net sales of the local currency. The rate hike, however, increased downward pressure on the stock market, allowing speculators to profit by short selling shares. The HKMA started buying component shares of the Hang Seng Index in mid-August 1998. The HKMA and
Donald Tsang Sir Donald Tsang Yam-kuen (; born 7 October 1944) is a former Hong Kong civil servant who served as the second Chief Executive of Hong Kong from 2005 to 2012. Tsang joined the colonial civil service as an Executive Officer in 1967, occupyi ...
, the then Financial Secretary, declared war on speculators. The Government ended up buying approximately HK$120 billion (US$15 billion) worth of shares in various companies, and became the largest shareholder of some of those companies (e.g., the government owned 10% of HSBC) at the end of August, when hostilities ended with the closing of the August Hang Seng Index futures contract. In 1999, the Government started selling those shares by launching the Tracker Fund of Hong Kong, making a profit of about HK$30 billion (US$4 billion).


Malaysia

In July 1997, within days of the
Thai baht The baht (; th, บาท, ; sign: ฿; code: THB) is the official currency of Thailand. It is divided into 100 ''satang'' (, ). The issuance of currency is the responsibility of the Bank of Thailand. SWIFT ranked the Thai baht as the 10th-mos ...
devaluation, the Malaysian ringgit was heavily traded by speculators. The overnight rate jumped from under 8% to over 40%. This led to rating downgrades and a general sell off on the stock and currency markets. By end of 1997, ratings had fallen many notches from investment grade to junk, the KLSE had lost more than 50% from above 1,200 to under 600, and the ringgit had lost 50% of its value, falling from above 2.50 to under 4.57 on (23 January 1998) to the dollar. The then prime minister, Mahathir Mohamad imposed strict capital controls and introduced a 3.80 peg against the U.S. dollar. Malaysian moves involved fixing the local currency to the U.S. dollar, stopping the overseas trade in ringgit currency and other ringgit assets therefore making offshore use of the ringgit invalid, restricting the amount of currency and investments that residents can take abroad, and imposed for foreign portfolio funds, a minimum one-year "stay period" which since has been converted to an exit tax. The decision to make ringgit held abroad invalid has also dried up sources of ringgit held abroad that speculators borrow from to manipulate the ringgit, for example by " selling short". Those who did, had to repurchase the limited ringgit at higher prices, making it unattractive to them. It also fully suspended the trading of CLOB (Central Limit Order Book) counters, indefinitely freezing approximately $4.47 billion worth of shares and affecting 172,000 investors, most of them Singaporeans, which became a political issue between the two countries. In 1998, the output of the real economy declined plunging the country into its first recession for many years. The construction sector contracted 23.5%, manufacturing shrunk 9% and the agriculture sector 5.9%. Overall, the country's gross domestic product plunged 6.2% in 1998. During that year, the ringgit plunged below 4.7 and the KLSE fell below 270 points. In September that year, various defensive measures were announced to overcome the crisis. The principal measure taken were to move the ringgit from a free float to a fixed exchange rate regime.
Bank Negara The Central Bank of Malaysia (BNM; ms, Bank Negara Malaysia) is the Malaysian central bank. Established on 26 January 1959 as the Central Bank of Malaya (''Bank Negara Tanah Melayu''), its main purpose is to issue currency, act as banker and ad ...
fixed the ringgit at 3.8 to the dollar. Capital controls were imposed while aid offered from the IMF was refused. Various task force agencies were formed. The Corporate Debt Restructuring Committee dealt with corporate loans. Danaharta discounted and bought bad loans from banks to facilitate orderly asset realization. Danamodal recapitalized banks. Growth then settled at a slower but more sustainable pace. The massive current account deficit became a fairly substantial surplus. Banks were better capitalized and NPLs were realised in an orderly way. Small banks were bought out by strong ones. A large number of PLCs were unable to regulate their financial affairs and were delisted. Compared to the 1997 current account, by 2005, Malaysia was estimated to have a $14.06 billion surplus. Asset values however, have not returned to their pre-crisis highs. Foreign investor confidence was still low, partially due to the lack of transparency shown in how the CLOB counters had been dealt with. In 2005 the last of the crisis measures were removed as taken off the fixed exchange system. But unlike the pre-crisis days, it did not appear to be a free float, but a managed float, like the
Singapore dollar The Singapore dollar (sign: S$; code: SGD) is the official currency of the Republic of Singapore. It is divided into 100 cents. It is normally abbreviated with the dollar sign $, or S$ to distinguish it from other dollar-denominated currencie ...
.


Mongolia

Mongolia was adversely affected by the ''Asian financial crisis'' of 1997–98 and suffered a further loss of income as a result of the Russian crisis in 1999. Economic growth picked up in 1997–99 after stalling in 1996 due to a series of natural disasters and increases in world prices of
copper Copper is a chemical element with the symbol Cu (from la, cuprum) and atomic number 29. It is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. A freshly exposed surface of pure copper has a pinkis ...
and cashmere. Public revenues and exports collapsed in 1998 and 1999 due to the repercussions of the Asian financial crisis. In August and September 1999, the economy suffered from a temporary Russian ban on exports of oil and oil products. Mongolia joined the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and ...
(WTO) in 1997. The international donor community pledged over $300 million per year at the last Consultative Group Meeting, held in
Ulaanbaatar Ulaanbaatar (; mn, Улаанбаатар, , "Red Hero"), previously anglicized as Ulan Bator, is the capital and most populous city of Mongolia. It is the coldest capital city in the world, on average. The municipality is located in north ce ...
in June 1999.


Singapore

As the financial crisis
spread Spread may refer to: Places * Spread, West Virginia Arts, entertainment, and media * ''Spread'' (film), a 2009 film. * ''$pread'', a quarterly magazine by and for sex workers * "Spread", a song by OutKast from their 2003 album ''Speakerboxxx/T ...
, the economy of
Singapore Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, bor ...
dipped into a short
recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...
. The short duration and milder effect on its economy was credited to the active management by the government. For example, the
Monetary Authority of Singapore The Monetary Authority of Singapore (MAS) is the central bank and financial regulatory authority of Singapore. It administers the various statutes pertaining to money, banking, insurance, securities and the financial sector in general, as well ...
allowed for a gradual 20% depreciation of the
Singapore dollar The Singapore dollar (sign: S$; code: SGD) is the official currency of the Republic of Singapore. It is divided into 100 cents. It is normally abbreviated with the dollar sign $, or S$ to distinguish it from other dollar-denominated currencie ...
to cushion and guide the economy to a soft landing. The timing of government programs such as the Interim Upgrading Program and other construction related projects were brought forward.Ngian Kee Jin: p. 12 Instead of allowing the labor markets to work, the National Wage Council pre-emptively agreed to
Central Provident Fund The Central Provident Fund Board (CPFB), commonly known as the CPF Board or simply the Central Provident Fund (CPF), is a compulsory comprehensive savings and pension plan for working Singaporeans and permanent residents primarily to fund thei ...
cuts to lower labor costs, with limited impact on
disposable income Disposable income is total personal income minus current income taxes. In national accounts definitions, personal income minus personal current taxes equals disposable personal income. Subtracting personal outlays (which includes the major ...
and local demand. Unlike in Hong Kong, no attempt was made to directly intervene in the capital markets and the ''Straits Times'' Index was allowed to drop 60%. In less than a year, the Singaporean economy fully recovered and continued on its growth trajectory.


Japan

The crisis had also put pressure on Japan, whose economy is particularly prominent in the region. Asian countries usually ran a
trade deficit The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
with Japan because its economy was more than twice the size of the rest of Asia together; about 40% of Japan's exports go to Asia. The Japanese yen fell to 147 as mass selling began, but Japan was the world's largest holder of currency reserves at the time, so it was easily defended, and quickly bounced back. A run on the banks was narrowly averted on 26 November 1997 when TV networks decided not to report on long queues that had formed outside banks, before the central bank had ordered that they be let in. The real GDP growth rate slowed dramatically in 1997, from 5% to 1.6%, and even sank into recession in 1998 due to intense competition from cheapened rivals; also in 1998 the government had to bail out several banks. The Asian financial crisis also led to more bankruptcies in Japan. In addition, with South Korea's devalued currency and China's steady gains, many companies complained outright that they could not compete. Another longer-term result was the changing relationship between the United States and Japan, with the United States no longer openly supporting the highly artificial trade environment and exchange rates that governed economic relations between the two countries for almost five decades after World War II.


United States

The U.S. Treasury was deeply involved with the IMF in finding solutions. The American markets were severely hit. On 27 October 1997, the Dow Jones industrial plunged 554 points or 7.2%, amid ongoing worries about the Asian economies. During the crisis, it fell 12%. The crisis led to a drop in
consumer A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...
and spending confidence (see 27 October 1997 mini-crash). Nevertheless the economy grew at a very robust 4.5% for the entire year, and did very well in 1998 as well.


Consequences


Asia

The crisis had significant
macroeconomic Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...
-level effects, including sharp reductions in values of currencies, stock markets, and other asset prices of several Asian countries. The nominal U.S. dollar GDP of ASEAN fell by $9.2 billion in 1997 and $218.2 billion (31.7%) in 1998. In South Korea, the $170.9 billion fall in 1998 was equal to 33.1% of the 1997 GDP. Many businesses collapsed, and as a consequence, millions of people fell below the poverty line in 1997–1998. Indonesia, South Korea and Thailand were the countries most affected by the crisis. The above tabulation shows that despite the prompt raising of interest rates to 32% in the Philippines upon the onset of crisis in mid-July 1997, and to 65% in Indonesia upon the intensification of crisis in 1998, their local currencies depreciated just the same and did not perform better than those of South Korea, Thailand, and Malaysia, which countries had their high interest rates set at generally lower than 20% during the Asian crisis. This created grave doubts on the credibility of IMF and the validity of its high-interest-rate prescription to economic crisis. The economic crisis also led to a political upheaval, most notably culminating in the resignations of President Suharto in Indonesia and Prime Minister General
Chavalit Yongchaiyudh Chavalit Yongchaiyudh ( th, ชวลิต ยงใจยุทธ, , ; born 15 May 1932), also known as "Big Jiew" (, , ), is a Thai politician and retired army officer. From 1986 to 1990 he was the List of Commanders of the Royal Thai Army, ...
in Thailand. There was a general rise in
anti-Western sentiment Anti-Western sentiment, also known as Anti-Atlanticism or Westernophobia, refers to broad opposition, bias, or hostility towards the people, culture, or policies of the Western world. Definition and usage In many modern cases, anti-Western s ...
, with
George Soros George Soros ( name written in eastern order), (born György Schwartz, August 12, 1930) is a Hungarian-American businessman and philanthropist. , he had a net worth of US$8.6 billion, Note that this site is updated daily. having donated mo ...
and the IMF in particular singled out as targets of criticisms. Heavy U.S. investment in Thailand ended, replaced by mostly European investment, though Japanese investment was sustained. Islamic and other separatist movements intensified in Southeast Asia as central authorities weakened. New regulations weakened the influence of the bamboo network, a network of overseas Chinese family-owned businesses that dominate the private sector of Southeast Asia. After the crisis, business relationships were more frequently based on contracts, rather than the trust and family ties of the traditional bamboo network. More long-term consequences included reversal of some gains made in the boom years just preceding the crisis. Nominal U.S. dollar GNP per capita fell 42.3% in Indonesia in 1997, 21.2% in Thailand, 19% in Malaysia, 18.5% in South Korea and 12.5% in the Philippines. Falls in income per capita with purchasing power parity were much smaller: in Indonesia by 15%, Thailand 12%, Malaysia 10%, South Korea 6%, Philippines 3%. In most countries recovery was fast. Between 1999 and 2005 average per capita annual growth was 8.2%, investment growth nearly 9%, foreign direct investment 17.5%. Precrisis levels of income per capita with purchasing power parity were exceeded in 1999 in South Korea, in 2000 in Philippines, in 2002 in Malaysia and Thailand, in 2005 in Indonesia. Within East Asia, the bulk of investment and a significant amount of economic weight shifted from Japan and
ASEAN ASEAN ( , ), officially the Association of Southeast Asian Nations, is a political and economic union of 10 member states in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, militar ...
to China and India. The crisis has been intensively analyzed by economists for its breadth, speed, and dynamism; it affected dozens of countries, had a direct impact on the livelihood of millions, happened within the course of a mere few months, and at each stage of the crisis leading economists, in particular the international institutions, seemed a step behind. Perhaps more interesting to economists was the speed with which it ended, leaving most of the developed economies unharmed. These curiosities have prompted an explosion of literature about
financial economics Financial economics, also known as finance, is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on ''both sides'' of a trade". William F. Sharpe"Financia ...
and a litany of explanations why the crisis occurred. A number of critiques have been leveled against the conduct of the IMF in the crisis, including one by former World Bank economist Joseph Stiglitz. Politically there were some benefits. In several countries, particularly South Korea and Indonesia, there was renewed push for improved
corporate governance Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context (such as accounting, finance, law, or management) often adopt narrow definitions ...
. Rampaging inflation weakened the authority of the Suharto regime and led to its toppling in 1998, as well as accelerating
East Timor East Timor (), also known as Timor-Leste (), officially the Democratic Republic of Timor-Leste, is an island country in Southeast Asia. It comprises the eastern half of the island of Timor, the exclave of Oecusse on the island's north-west ...
's independence. It is believed that 10,400 people committed suicide in Hong Kong, Japan and South Korea as a result of the crisis. In August 2001, the
International Labour Organization The International Labour Organization (ILO) is a United Nations agency whose mandate is to advance social and economic justice by setting international labour standards. Founded in October 1919 under the League of Nations, it is the first and o ...
arranged the Thirteenth Asian Regional Meeting with 39 member states as a result of the financial crisis. It focused on providing social protection, rights at work and creating new jobs.


Outside Asia

After the Asian crisis, international investors were reluctant to lend to developing countries, leading to economic slowdowns in developing countries in many parts of the world. The powerful negative shock also sharply reduced the price of oil, which reached a low of about $11 per barrel towards the end of 1998, causing a financial pinch in OPEC nations and other oil exporters. In response to a severe fall in oil prices, the
supermajor Big Oil is a name used to describe the world's six or seven largest publicly traded and investor-owned oil and gas companies, also known as supermajors. The term, particularly in the United States, emphasizes their economic power and influence ...
s that emerged in the late-1990s, undertook some major mergers and acquisitions between 1998 and 2002 – often in an effort to improve
economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...
, hedge against oil price volatility, and reduce large cash reserves through reinvestment. The reduction in oil revenue also contributed to the 1998 Russian financial crisis, which in turn caused Long-Term Capital Management in the United States to collapse after losing $4.6 billion in 4 months. A wider collapse in the financial markets was avoided when
Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. ...
and the Federal Reserve Bank of New York organized a $3.625 billion
bailout A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy. A bailout differs from the term ''bail-in'' (coined in 2010) under which the bondholders or depositors of global sys ...
. Major
emerging economies An emerging market (or an emerging country or an emerging economy) is a market that has some characteristics of a developed market, but does not fully meet its standards. This includes markets that may become developed markets in the future or were ...
Brazil Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
and
Argentina Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the second-largest country in South America after Brazil, th ...
also fell into crisis in the late 1990s (see Argentine debt crisis). The
September 11 attacks The September 11 attacks, commonly known as 9/11, were four coordinated suicide terrorist attacks carried out by al-Qaeda against the United States on Tuesday, September 11, 2001. That morning, nineteen terrorists hijacked four commer ...
contributed to major shockwave in developed and developing economies (see
Stock market downturn of 2002 In 2001, stock prices took a sharp downturn (some say "stock market crash" or " the Internet bubble bursting") in stock markets across the United States, Canada, Asia, and Europe. After recovering from lows reached following the September 11 ...
)''The Crash'' transcript.
PBS Frontline ''Frontline'' (stylized as FRONTLINE) is an investigative documentary program distributed by the Public Broadcasting Service (PBS) in the United States. Episodes are produced at WGBH in Boston, Massachusetts. The series has covered a variety ...
.
The crisis in general was part of a global backlash against the Washington Consensus and institutions such as the IMF and
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
, which simultaneously became unpopular in developed countries following the rise of the
anti-globalization movement The anti-globalization movement or counter-globalization movement, is a social movement critical of economic globalization. The movement is also commonly referred to as the global justice movement, alter-globalization movement, anti-globalis ...
in 1999. Four major rounds of world trade talks since the crisis, in
Seattle Seattle ( ) is a seaport city on the West Coast of the United States. It is the seat of King County, Washington. With a 2020 population of 737,015, it is the largest city in both the state of Washington and the Pacific Northwest regio ...
,
Doha Doha ( ar, الدوحة, ad-Dawḥa or ''ad-Dōḥa'') is the capital city and main financial hub of Qatar. Located on the Persian Gulf coast in the east of the country, north of Al Wakrah and south of Al Khor, it is home to most of the count ...
,
Cancún Cancún ( ), often Cancun in English (without the accent; or ) is a city in southeast Mexico on the northeast coast of the Yucatán Peninsula in the Mexican state of Quintana Roo. It is a significant tourist destination in Mexico and the seat ...
, and Hong Kong, have failed to produce a significant agreement as developing countries have become more assertive, and nations are increasingly turning toward regional or bilateral
free trade agreement A free-trade agreement (FTA) or treaty is an agreement according to international law to form a free-trade area between the cooperating states. There are two types of trade agreements: bilateral and multilateral. Bilateral trade agreements occ ...
s (FTAs) as an alternative to global institutions. Many nations learned from this, and quickly built up
foreign exchange reserve Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
s as a hedge against attacks, including Japan, China, South Korea. Pan Asian
currency swap In finance, a currency swap (more typically termed a cross-currency swap, XCS) is an interest rate derivative (IRD). In particular it is a linear IRD, and one of the most liquid benchmark products spanning multiple currencies simultaneously. I ...
s were introduced in the event of another crisis. China, in particular, bought up the government debt of the United States to protect itself. However, nations such as Brazil, Russia, and India as well as most of East Asia began copying the Japanese model of weakening their currencies, and restructuring their economies so as to create a current account surplus to build large
foreign currency reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
. This has led to ever-increasing funding for U.S. treasury bonds, allowing or aiding housing (in 2001–2005) and stock asset bubbles (in 1996–2000) to develop in the United States, setting the factors that led to the
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
.


See also

* 1998 Russian financial crisis, partly connected to the 1997 Asian financial crisis * Samba effect * Bamboo network General: *
1990s Chinese bank restructurings Throughout the 1990s, China's banking system underwent systemic restructurings. The Chinese government took several major steps to recapitalize its banks and to reduce non-performing loans (NPLs). Overview Like many of the countries directly affec ...
*
Financial contagion Financial contagion refers to "the spread of market disturbances mostly on the downside from one country to the other, a process observed through co-movements in exchange rates, stock prices, sovereign spreads, and capital flows". Financial contag ...
*
Liquidity crisis In financial economics, a liquidity crisis is an acute shortage of ''liquidity''. Liquidity may refer to market liquidity (the ease with which an asset can be converted into a liquid medium, e.g. cash), funding liquidity (the ease with which borrow ...
*
Financial crisis of 2007–08 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of f ...
* Stock disasters in Hong Kong


References


Further reading

* * * Delhaise Philippe F. (1998) ''Asia in Crisis : The Implosion of the Banking and Finance Systems''. John Wiley & Sons. * Goldstein, Morris. ''The Asian financial crisis: Causes, cures, and systemic implications'' (Institute For International Economics, 1998)
online
* Haggard Stephan: ''The Political Economy of the Asian Financial Crisis'' (2000) * Hollingsworth, David Anthony (2007, rev. 2008) "The Rise, the Fall, and the Recovery of Southeast Asia's Minidragons: How Can Their History Be Lessons We Shall Learn During the Twenty-First Century and Beyond?" Lexington Books. (, 9780739119815) * Kaufman, GG., Krueger, TH., Hunter, WC. (1999) ''The Asian Financial Crisis: Origins, Implications and Solutions''. Springer. * Khan, Saleheen, Faridul Islam, and Syed Ahmed. (2005) "The Asian crisis: an economic analysis of the causes." ''Journal of Developing Areas'' (2005): 169–190
online
* Muchhala, Bhumika, ed. (2007)
Ten Years After: Revisiting the Asian Financial Crisis
'. Washington, DC:
Woodrow Wilson International Center for Scholars The Woodrow Wilson International Center for Scholars (or Wilson Center) is a quasi-government entity and think tank which conducts research to inform public policy. Located in the Ronald Reagan Building and International Trade Center in Wash ...
Asia Program. * Noland, Markus, Li-gang Liu, Sherman Robinson, and Zhi Wang. (1998) ''Global Economic Effects of the Asian Currency Devaluations''. Policy Analyses in International Economics, no. 56. Washington, DC: Institute for International Economics. * Pempel, T. J. (1999) ''The Politics of the Asian Economic Crisis''. Ithaca, NY: Cornell University Press. * * * Ries, Philippe. (2000) ''The Asian Storm: Asia's Economic Crisis Examined''. (2000) * Sharma, Shalendra. (2003): ''The Asian Financial Crisis: New International Financial Architecture: Crisis, Reform and Recovery'' (Manchester University Press, 2003) * Tecson, Marcelo L. (2005) ''Puzzlers: Economic Sting'' (The Case Against IMF, Central Banks, and IMF-Prescribed High Interest Rates) Makati City, Philippines: Raiders of the Lost Gold Publication * * Fengbo Zhang: Opinion on Financial Crisis
6. Defeating the World Financial Storm
China Youth Publishing House (2000).


Papers

* Ngian Kee Jin (March 2000)
''Coping with the Asian Financial Crisis: The Singapore Experience''
Institute of Southeast Asian Studies. * Tiwari, Rajnish (2003)
''Post-crisis Exchange Rate Regimes in Southeast Asia''
Seminar Paper, University of Hamburg. * Kilgour, Andrea (1999)

* Stiglitz, Joseph (1996)
''Some Lessons From The East Asian Miracle''
The World Bank Research Observer. * Weisbrot, Mark (August 2007)
''Ten Years After: The Lasting Impact of the Asian Financial Crisis''
Center for Economic and Policy Research. * Tecson, Marcelo L. (2009), ''"IMF Must Renounce Its Weapon of Mass Destruction: High Interest Rates"'' (4-part paper on ''high-interest-rate fallacies and alternatives'', emailed to IMF and others on 27 January 2009)


External links


Is Thailand on the road to recovery
article by Australian photo-journalist John Le Fevre that looks at the effects of the Asian Economic Crisis on Thailand's construction industry
Women bear brunt of crisis
article by Australian photo-journalist John Le Fevre examining the effects of the Asian Economic Crisis on Asia's female workforce
The Crash
(transcript only), from the PBS series Frontline


External links


Impact on Indonesia
from th
Dean Peter Krogh Foreign Affairs Digital Archives



Asia's Financial Sector: 12 Things to Know
Asian Development Bank {{Authority control 1990s economic history Asian Financial Crisis, 1997 Asian Financial Crisis, 1997 Asian Financial Crisis, 1997 Asian Financial Crisis, 1997 1997 in Thailand Economic history of Japan Economic history of Malaysia Economic history of South Korea Economic history of the People's Republic of China Economic history of the Philippines Economic history of Asia Economy of Indonesia Economy of Singapore Economy of South Korea Economic history of Thailand Finance in China Finance in Hong Kong History of Hong Kong Economic history of Singapore New Order (Indonesia) Stock market crashes 1997 in Japan
Asian financial crisis The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion. However, the recovery in 1998– ...
Presidency of Eduardo Frei Ruiz-Tagle