Asian Financial Crisis

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28 Οκτ 2013 (πριν από 4 χρόνια και 2 μήνες)

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Asian Financial
Crisis


Group 8

Ali
Ahadi

Russell
Kucinski

Wu
Meng

Heng

Agenda


Asian financial crisis 1997


98


Data


History events


Causes


Speculators


Role of IMF


Conclusion


Q&A



Exchange rate (to dollar)

Currency

Exchange rate

June1997

Exchange rate

July 1998

Change

Thai
Baht

24.5

41

↓40.20%

Indonesian
Rupiah

2,380

14,150


83.20%

Philippine
Peso

26.3

42


37.40%

Malaysian
Ringgit

2.5

4.1


39.00%

South Korean
Won

850

1,290

↓34.10%

Total GNP

Currency

GNP (US billion)

June1997

GNP (US billion)

July 1998

Change

Thailand

166

132

↓20.42%

Indonesia

221

131


41.05%

Philippine

88

79


10.67%

Malaysia

98

81

↓17
.34%

South Korean

485

399

↓17.73%

Events in
97


Time

Events

Early 1997

The
Thai

baht is under speculative attack.

Early 1997

There are seven high
-
profile bankruptcies of

Korean
conglomerates, such as
Hanbo

Steel and Kia Motors.

July

The
Philippines

abandons dollar
-
peg and imposes
certain foreign exchange controls.

Malaysia also abandons its pegged exchange rate.

20 August

The

IMF

puts together a $17.2 billion

Thai

rescue.

Mid
-
October

Devaluations to the dollar average 20% to 30% in
Thailand
,
Indonesia
,
Malaysia

and the
Philippines
.

5 November

Indonesia

finalizes a deal with the IMF for funding that
could total up to $42.3 billion.

4

December

The IMF organizes a $58.2 billion rescue for

Korea

Events in
98

Time

Event

June

The second phase of the crisis, '
Asia II
', begins with
another speculative attack on the Hong Kong dollar.

June

The
Hong Kong
dollar peg is defended by the
authorities with market intervention.

17 June

The United States begins to intervene in the foreign
exchange markets, attempting to support the
Japanese yen.

August

The
Hong Kong
dollar is attacked again and $8.8
billion is spent defending it.

September

1

Malaysia

imposes more capital controls; the ringgit is
fixed at RM3.80 to the dollar.

September

As real economic activity contracts
,
Korea

lowers
short term interest rates.

Causes


Poor Regulation of the Economy


Macroeconomic Policy: Fixed Exchange
Rates


Over
-
Inflated Asset Prices


Over
-
Dependence on Short
-
Term Foreign
Funds


Unsustainable Current Account Deficits


Speculation?

Who are
s
peculators?

Large International financial
institutions,
banks and
fund managers attacking
c
entral
b
anks

Why?

They short sale currencies and make the
central bank run
out of
foreign reserves.
T
his
breaks
the equilibrium among
currencies

George Soros


Soros Fund Management (est. 1969)


Advises Quantum Group of Funds


“the Man
W
ho
B
roke the Bank of
England”


Blamed for sharp devaluation of
southeastern currencies


If you had invested $1k in 1969, you would
have $1 mil 25 years later (32% growth/yr.)


I
n July of 1997, Soros Fund Profits doubled!

Speculators Take Actions
When…


Financial
markets are ruled by humans
emotional reactions than using logical
calculation!

When a developing country
starts to
financially liberalize before
its institutions or
knowledge base is
prepared,
it opens itself
to the possibility of
shocks
and instability
with
inflows and outflows of
funds!

How Did Speculators Take
Advantage of Asian Markets?


M
acroeconomic indicators:



L
arge
current account
deficits



D
eclining exports


E
xcessive
lending to certain economic
sectors



W
eak
banking
systems,
coupled with
inadequate national policies governing the
outflow of
capital



H
igh
levels of short
-
term
debt



Nations Under Speculation
Attacks:


Thailand


Malaysia


Hong Kong ($1b=D, $80 b in FR)


Philippines


China (Non
-
Convertible Currency)


South Korea


Japan


What Happened in Thailand?



On May 14 & 15, Soros
attacked Thai Baht


Borrowed
and sold Thai baht, receiving US
dollars in
exchange



Financial crises started when Baht was not
defended


T
he
baht fell,
speculators needed
much less
dollars to repay the baht loans, thus making
large
profits


Thai
government used
US
$20 billion of foreign
reserves


The Central Bank ran out of Foreign Reserves

Previous Financial Crises


What happened in East Asia is not peculiar,
but has already
happened to:


Many
Latin American countries in
1980s



Sweden and Norway in the early 1990s



Mexico in
1994


Southeast Asia in 1997


Russia in 1998

They
faced sudden currency depreciations due to
speculative attacks or large outflows of
funds

IMF History and
Background


1944


44 governments establish a framework for global
economic development.


1973


currencies of major powers allowed to float


1997


Asian Financial Crisis


2008


IMF faces budget shortfall


2009


G
-
20 London


members pledge to increase
supplemental cash to $500B


2010


members agree to shift 6% voting shares to
developing nations.


Currently 187 member nations

IMF and the Asian Financial Crisis


Imposition of “Fast Track Capitalism”


Liberalization of financial sectors


Raise domestic interest rates bolstering bank
capital


Peg national currencies to the dollar to
protect foreign investors


-


Conditionalities
” and austerity measures inhibit the
ability of countries to develop their home economies


Encouraged devaluation of currencies making
imports more expensive


Became known as “Lender of Last Resort.”


Interest rates above market average.








Criticism of the IMF


Largely controlled by developed nations


“New Colonialism” austerity measures
inhibit long term economic growth


Western style economic reforms and
greater ownership by foreign firms


Monetarist priorities overlook public health,
environment, and poverty


Repayment policies do not foster long
-
term growth


Conclusion

1. A government should settle its own
policies to protect its economy structure.


2. Speculators seek weakness


3. The IMF: an antiquated system

Q
&

A


?!?