the southeast-asian financial crisis
TRANSCRIPT
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Group members:
Reena Alva 04
Disha Anandpara05
Vicky Barot 06Rachel Joshua 29
Rishabh Kapoor 33
Afzal Patel 49
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Flow of presentationINTRODUCTION
CAUSES OF SOUTH EAST ASIAN CRISIS
EFFECTS OF CRISIS IN THE REGIONIMF AND ITS HANDLING OF THE CRISIS
GLOBAL IMPACT OF THE CRISIS
STEPS TO OVERCOME THE CRISIS
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Southeast Asia before
crisisSoutheast Asia one of the most successful emerging
market countries
Southeast Asia attracted foreign investors on the
grounds of high interest ratesHigh GDP growth rates.
This achievement was widely acclaimed by financialinstitutions including the IMF and World Bank, and wasknown as part of the "Asian economic miracle
As a result it experienced high inflow of money &increased asset prices.
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Beginning of the downfallDecision of the Thai government to float the
baht
Southeast Asia then saw slumping currencies
Burden of Foreign DebtStock Market and other asset prices devalued
Rise in private debt
Most countries experienced large currentaccount deficits.
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Countries most affected were Indonesia,
South Korea and Thailand , countries likeHong Kong, Malaysia, and the Philippinesalso faced economic slowdown.
A slowdown of exports and performanceafter 1996.
Generally prudent fiscal policies and highprivate saving rates did not provide with
the possibility of these countries to face ameltdown.
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The crisis can be divided into 2 phases
The 1st phase 1996 to onset of crisis followed
by IMF funding.The 2nd phase covers period from may 1998
after short period of stabilization.
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Unsustainable Current Account deficit
Over Dependence on Short Termborrowings
Poor Regulation of the Economy
Over-Inflated Asset Prices
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Effects of the Crisis in the
RegionEquity Markets Collapsed
Capital Crunch
High Interest rates
Devaluation of Currency
Impact on Export Industry
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Impact on Domestic Industry due to highInterest rates
Unemployment
Reduction in Foreign Exchange
Bankruptcy of Financial Institution
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IMF POLICY HAD NUMBER
OF KEY ELMENTSA. FINANCIAL ASISTANCEThe rescue funding for the Asian Crisiseconomies was organised by the IMF over the
course of the second half of 1997.54 The need forinternational assistance to stricken economies isusually only triggered when there is a danger ofsovereign default. In trying to defend their
currencies from speculation, the Thai, Korean andIndonesian governments were in danger ofdefaulting on their repayment commitments bylate 1997 and thus needed aid.
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B. The Austerity Programme
1.Fiscal Policy
Fiscal policy is tightened to limit the needfor inflows of capital from overseas.
So that money could be diverted to paysome of
the costs of bank restructuring. IMF staff inWashington had apparently wanted a fiscal
contraction of 3-4% of GDP, but the staff inThailand found the authorities reluctant to
see a contraction of more than 2%.
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2. Monetary Policy
A high interest rate policy has the twin effectsof reducing the need for external capital
inflows and helping to maintain export
competitiveness by controlling domesticprices. If
monetary policy is not tightened, the benefitof the devaluation is lost:
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C. Restructuring
The IMF programs arranged for:
The re-capitalisation of undercapitalisedinstitutions;
Close supervision of weak institutions;
Increased potential for foreign participation indomestic financial systems.
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The Global Impact of the Asian
Crisis
Loss of global financial wealth $ 2.3 trillion
= 19% of OECD consumers expenditure
Effects seen through reduced trade flowsand lower FDI
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A. The Wealth Effect: Falls in
Equity MarketsCOUNTRIES AFFECTED:
The UK, pension funds had about 5% of theirassets, approximately $50 billion, in the Pacificregion
Flows from the US into the regions equitymarkets amounted to $33 billion
Japan was the most exposed western economyto the South East Asian markets
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B. International TradeSouth East Asian currency devaluation =
weakening of demand for western goods =brake on the growth of exports of foreigncountries
On the import side: South East Asian
producers cut prices to maintain demand =Western manufacturers were pressurised intoreducing their prices
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C. Foreign Direct
InvestmentIncrease in the cost of acquiring overseas
assets
Most affected : UK, due to delay ortermination of Korean projects
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CRISIS
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Aggressive openness to ASEAN
EconomiesEmphasis on liberalization, Privatization and
Deregulation.
New form of linkage with other countries
ASEAN+3
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Sound Financial
MeasuresDeepening strong Bond Market
Common Currency
Capital account Liberalization
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Growth Integration of ASEAN
EconomiesAFTA
Streamlining harmonizing Custom procedures
Trans ASEAN highway system, ASEAN powergrid, trans SEAN gas pipeline network,telecommunication interconnectivity.
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