What is 1997 asian financial crisis

On July 2, , Thailand devalued its currency relative to the U. Malaysia, the Philippines, and Indonesia also allowed their currencies to weaken substantially in the face of market pressures, with Indonesia gradually falling into a multifaceted financial and political crisis. Hong Kong faced several large but unsuccessful speculative attacks on its currency peg to the dollar, the first of which triggered short-term stock market sell-offs across the globe.

And severe balance-of-payments pressures in South Korea brought the country to the brink of default. Across East Asia, capital inflows slowed or reversed direction, and growth slowed sharply. Banks came under significant pressures, investment rates plunged, and some Asian countries entered deep recessions, producing important spillovers to trading partners across the globe.

The events that came to be known as the Asian Financial Crisis generally caught market participants and policymakers by surprise. Business-friendly policies and cautious fiscal and monetary management had translated into high rates of savings and investment, supporting GDP growth rates exceeding 5 percent and often approaching 10 percent.

However, as the crisis unfolded, it became clear that the strong growth record of these economies had masked important vulnerabilities.

In particular, years of rapid domestic credit growth and inadequate supervisory oversight had resulted in a significant build-up of financial leverage and doubtful loans. Overheating domestic economies and real estate markets added to the risks and led to increased reliance on foreign savings, reflected in mounting current account deficits and a build-up in external debt.

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Instead we have an unnecessary interference in the internal workings of the countries in question. In his own words:.

The legitimate political institutions of the country should determine the nation's economic structure and the nature of its institutions. A nation's desperate need for short-term financial help does not give the IMF the moral right to substitute its technical judgements for the outcomes of the nation's political system.

There has been pressure on Japan to stimulate its economy, increase its imports from the region, and so contribute to economic recovery among Asian economies. Japan is the major surplus country and in the best position to accept a large surge in imports. The importance of Japan for the rest of the region cannot be over-emphasised. For example, Business Week said:. All these measures [policy responses to the crisis] will be meaningless unless Japan also makes some serious commitments. So far, Tokyo has stood out as one of the chief villains in the crisis.

It has let the Yen slide to boost its own exports at the expense of its neighbours. And it has clamped down on its domestic growth, ignoring pleas to import more Asian goods Corralling Japan into the effort will be a major challenge.

Japanese responsibility has been a growing concern as the crisis continued. There is criticism that Japan has not acted as decisively as the international community would have liked. Australia's Treasurer, Peter Costello, welcomed the package saying 'the Japanese economy has been in the doldrums for most of the decade and it is important that it once again becomes a driver in the region.

For example, there is concern that the Japanese fiscal stimulus will not compensate for the slump in Japanese exports caused by the Asian crisis.

In the context of continuing concern by the international community, the Japanese yen has been in decline over most of the last 18 months or so. The fall in the yen raised the prospect that the rest of the affected Asian economies would be forced to engage in a new round of devaluations. However, that relationship was seen to be threatened by the falling yen.

Accordingly the US and Japanese Governments intervened on 17 June with a package of measures including the purchase of the yen by the US. Nevertheless there remain continuing calls for Japan to further stimulate its economy to assist the region as a whole.

The IMF arranged rescue packages for three countries facing severe crises-Thailand, Indonesia and Korea in that order. In looking at the individual packages described below, it is important to note that there are many initiatives which go beyond the type of responses needed to quickly address currency problems.

The packages include measures that affect the structure of the economies concerned, such as the accountability of the corporate sector, legislated monopoly privileges and prudential regulation of the financial institutions.

IMF packages have always had their critics. However, criticism has been particularly severe as the Asian packages have gone into such detail in areas that are arguably the domain of domestic political determination. From mid Thailand was experiencing a sharp downturn in exports and slowdown in growth, difficulties in the property markets, a sharp fall in the stock market and weakening of the fiscal position.

That was followed by 'a series of increasingly serious attacks on the baht. The package of measures under the program included:. Indonesia has been hardest hit by the Asian financial crisis with massive falls in the exchange rate and stock prices.

The IMF believes that Indonesia's structural weaknesses made it especially vulnerable to adverse external developments. It cites domestic trade regulations, import monopolies, lack of transparency and data deficiencies in the business environment, a weak banking system ill-prepared to withstand the financial turmoil in SE Asia, and high levels of corporate overseas debt taken out after a history of stable exchange rates which proved unsustainable.

The rest of the package includes:. Indonesia's own external assets, which are estimated at equivalent to 6 months imports, are committed to the package.

In addition, Australia, as well as China, Hong Kong, Japan, Malaysia, Singapore and the US have indicated they would be prepared to consider supplementary finance to support the program in the event the IMF credit arrangements proved insufficient. Since the Indonesian package was agreed the Indonesian Government appears to have lost faith in the IMF package and implementation has been delayed or avoided.

The IMF was concerned about that and the fact that the Indonesian Government was looking for solutions outside of the agreed package. In March the IMF delayed payments to Indonesia under the program and warned that Indonesia's crisis could worsen the situation throughout Asia.