Couses, policy responses, and outcomes wp998 created date. What began as a currency crisis soon affected the wider economy and spread quickly to the rest of the region, leading to economic downturns in several countries. Before the asian financial crisis, asian countries such as south korea, singapore, taiwan and hong kong experienced rapid growth and was often referred as the asian tiger economies. Short summary of the paper what caused the asian currency. Today, even though asian economies have been transformed, vulnerabilities remain and gold could help to mitigate them. This pdf is a selection from an outofprint volume from the national bureau of economic research. Symposium on economic and financial recovery in asia unctad x, bangkok, 17 february 2000 a. What has been called the asian crisis followed a prolonged slump in japan dating from the early 1980s and came after the mexican currency crisis in the mid1990s. After posting some of the most impressive growth rates in the world at the time, the socalled tiger economies saw their stock markets and currencies lose about 70% of their value. Pdf the rapid recovery in asia economies in some ways of a surprise because many countries in asia had tried a lot of ways to stabilize the economy. With a high level of shortterm international debt, a depreciation of the domestic. The asian financial crisis of 1997 affected many asian countries, including south korea, thailand, malaysia, indonesia, singapore, and the philippines. These crises have been costly for the countries directly affectedboth those where the crises began and those that might have.
The turmoil that has rocked asian foreign exchange and equity markets over the past eight months is the third major currency crisis of the 1990s. What started in the summer of 1997 as a regional economic and financial crisis in east and. Causes and contentions 2 quite a shock to not only the world, but the very institutions. This soon developed into fullblown crises in thailand, indo. The impacts of asian currency crisis on international portfolio diversification. The hottest economies in the world during the 1990s were in southeast asia. Pdf the asian financial crisis of 19971998 revisited. The results indicate that fund profits were not generally positive during the crisis, nor were funds estimated exposures to asian currencies unusual. Though it is generally characterized as a financial crisis or economic crisis, it can also be seen as a crisis of governance at all major levels of politics. Predominantly eight high performing asian economies attained miraculous.
The thai baht was by all accounts the first to come under heavy selling pressure. The crisis in east asia, like crises almost everywhere else, was preceded by a sharp increase in capital flows to the region. It provides a detailed account of the development of the crisis and analyses and evaluates the content of imf advice and its consequences. Yet, also in the 2008 crisis, authorities have directly intervened in the foreign exchange market, sometimes in order to defend a falling currency but in other instances with the aim to limit appreciation pressure, akin of competitive devaluations. Asian currency crisis and the international monetary fund, 10. Adverse external shocks had struck the developing countries of east and southeast asia in the past, most notably the oil price increases of the 1970s and early 1980s. This explanation of the asian currency crisis stresses the link between future deficits and current movements in the exchange rate. In 2017, the merger of the banks concessional asian development fund lending operations with the ordinary capital resources balance sheet helped adb deliver another record year of operations. They maintained remarkably high growth rates over 7% from 1960s1990s due to rapid industrialisation. Hedge funds and the asian currency crisis the journal of. The asian financial crisis, which erupted in 1997 in thailand. A currency crisis raises the probability of a banking. The onset of the crisis currency attacks problems in thailand the asian crisis started with attacks on currencies in the region. Nov 22, 20 asian financial crisis july 1997december 1998.
Asian financial crisis, major global financial crisis that destabilized the asian economy and then the world economy at the end of the 1990s the 199798 asian financial crisis began in thailand and then quickly spread to neighbouring economies. Financialsector weaknesses each of the asean4 economies experienced a credit boom in the 1990s, that is, the growth of bank and nonbank credit to the private. Many economists believe that the asian crisis was created not by. Causes, recovery, and the path going forward research pdf available march 2016 with 5,143 reads how we measure reads. Unlike in two previous episodes the asian crisis of 199798 and the crisis following the russian debt default in 1998 in 2008 many countries that were not at the centre. The asian financial crisis, which erupted in 1997 in. What was at the time perceived to be a localized currency and financial crisis in thailand, soon spread to other southeast asian countriesincluding malaysia, indonesia and the philippines. Following the canonical krug man 1 979 model, a balanceofpayments crisis currency depreciation, loss of foreign exchange reserves, collapse of a pegged exchange rate.
E58, e61, f33, f42 we thank richard newfarmer, olivier cattaneo and patrick messerlin as well as participants at wb cepr conference trade implications of policy responses to the crisis for helpful. This chapter discusses the intermarket reactions to the 19971998 asian currency crisis. This paper documents the exchange rate interventions during the height of the. The asian currency crisis unuwider united nations university. The financial crisis of east asia in 1997 was largely unanticipated and was character. Pdf asian financial crisis 19971998 anujin erdenemunkh. The asian crisis was a direct result of this financial liberalization, and the logic was fairly straightforward. First, singapores exports to the crisishit economies were badly affected as a result of severely diminished regional demand, due in part to the collapse of their currencies.
A currency crisis results from chronic balance of payments deficits, and thus is also called a balance of payments crisis. Asia crisis, interest rates and exchange rates, currency crises, balance of payments crises. These crises have been costly for the countries directly affectedboth those where the crises began and those that might have escaped them but for spillover and contagion effects. Asian countries suffered heavily as a result of the financial crisis in which none of them managed to completely evade from the crisis. Also working paper pb9802, center for pacific basin monetary and economic studies, federal reserve bank of san francisco. Lessons from the asian crisis of 1997 world gold council. Vxfksuhvvxuhvdqgeholhivuhsuhvhqwhgwkhxqghuslqqlqjvridvxvwdlqhg surfhvvrifdslwdodffxpxodwlrq9 uhvxowlqjlqwrshuvlvwhqwdqgvldeohfxuuhqw dffrxqwgh. Koreas currency crisis in late 1997, however, quickly escalated into financial and economic crises, with the continued loss of confidence by foreign investors. Asian financial crisis, major global financial crisis that destabilized the asian economy and then the world economy at the end of the 1990s. Causes and sources of the asian financial crisis unctad. What caused the asian currency and financial crisis.
Lessons from the east asian currency crisis and recovery. Lau, stanford university 2 a brief history u the east asian currency crisis began in thailand in late june of 1997 and essentially stabilized in the last quarter of 1998 u with the exception of two currencies, the chinese yuan and the hong kong dollar, all other east asian currencies lost significant. The asian financial crisis which started in currency markets in south east asia, then spread to other markets, undermined first confidence, then faith in the. The political economy of the asian financial crisis the asian economic crisis of 199798 was a singular event in the regions postwar economic history. Economic growth and public policy world bank report, oxford university press, 1993. May, 2007 this paper is an overview of the asian currency crisis in thailand, indonesia, and south korea in 19971998, with an emphasis on the role of the international monetary fund imf. Lets follow along as a currency crisis spread from one country to the next and brought the growth to a halt. The asian financial crisis, which erupted in 1997 in thailand, awoke the world to contagion, a new peril inherent to highly interconnected financial markets. This paper examines the roots of singapores resilience and assesses singapores policy responses to the 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 the crisis started in thailand known in thailand as the tom yum goong crisis. Consequently, the authors find no empirical evidence to support the hypothesis that george soros, or any other hedge fund manager, was responsible for the crisis. Introduction so much has been written and revealed since july 1997 on the causes of the asian crisis that. Currency crises federal reserve bank of san francisco.
Spreading quickly within and outside the region, the crisis brought the worlds 11th largest economy, korea, to the brink of bankruptcy and led to the defaults by russia and brazil. Thus, the asian crisis became a major policy concern at the international monetary fund as well as among developed countries whose cooperation in dealing with such financial crises is. The crisis in hindsight for the economics profession, the asian financial crisis has been divisive and, for some economists, humbling. Asian financial crisis 1997 explained fly malaysia. The 2017 annual report is a clear, comprehensive and detailed record of adbs operations, activities and financial results over the year. Often such a crisis culminates in a devaluation of the currency. The case of india pami dua1 department of economics delhi school of economics university of delhi, delhi 17 india and arunima sinha department of economics columbia university, new york, ny usa abstract this paper tests and explains the impact of the east asian crisis on indias exchange rate. A currency crisis is a type of financial crisis, and is often associated with a real economic crisis. The thai baht was the first currency to experience problems. The singapore experience abstract singapore has weathered the asian financial crisis better than most asian economies. The asian financial crisis has adversely affected singapore through several channels. The asian financial crisis, which began ten years ago, was in many ways a formative event at the end of the 20th century. After a series of speculative attacks, thailand was forced to let its currency float on 2.
Origins of the crisis financial crises are seldom generated by one or two isolated factors. Munich personal repec archive from the 199798 asian. Immediate causes of the crisis, and its early development1 a. The exchange rate crisis that ensued exacerbated the problem, as the currency depreciation dramatically increased the real burden of the debt that was denominated in foreign currencies and led to further financial crisis. Causes and sources of the asian financial crisis yilmaz akyuz, unctad, geneva paper presented at the host country event. In early 1960s and 1990s east asia undergo rapid industrialization with high degree of market openness and great rate of investment that constructed average 7 % economic growth. Oct 07, 2019 a currency crisis is brought on by a sharp decline in the value of a countrys currency. The collapse in asian currency markets caused a corresponding collapse in asian stock prices, which had a ripple effect around the globe. The asian financial crisis and the role of the imf. This link is also stressed by corsetti and mackowiak 2006, daniel 2001, and dupor 2000, who use the fiscal theory of. Pdf the asian financial crisis and the role of the imf. If, in cases of the affected asian countries, there were strong warning signals of a heightened probability of a financial crisis prior to the 1997 crisis from such models, then there are good reasons. A currency crisis is brought on by a sharp decline in the value of a countrys currency. A speculative attack was the cause for the asian financial crisis in 1997, in which malaysia itself was caught in this crisis.
International finance and macroeconomics this paper provides an early diagnosis of the financial crisis in asia, focusing on the empirical record in the leadup to the crisis. Currency crisis models currency crises have been the subject of an extensive economic literature, both theoretical and empirical. This paper analyzes the east asian currency crisis to examine what factors led to the crisis and the differential impact across countries. A financial crisis started in thailand in july 1997 and spread across east asia, wreaking havoc on economies in the region and leading to spillover effects in latin america and eastern europe in 1998. Singapore was not directly hit but suffered the spillover effects of the economic slowdown, and fell into recession in the second half of. This decline in value, in turn, negatively affects an economy by creating instabilities in exchange rates. 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.
Pdf the turmoil that has rocked asian foreign exchange and equity markets over the past eight months is the third major currency crisis of the 1990s find. We identify five main types of financial crises, which may in fact be intertwined in any particular historical episode. Central bank policy, exchange rate intervention, competitive devaluations, financial crisis jel classification. It began as a currency crisis when bangkok unpegged the thai baht from the u. While each episode has its own characteristics, a number of common. The onset of the east asian financial crisis steven radelet, jeffrey sachs. The east asian crisis of 199798 and the mexican crisis of 199495 are the latest of a large number of crises in the past two decades. The asian financial crisis erupted just over 20 years ago, with profound implications for the region and beyond.
Any opinions expressed here are those of the author and not of thomson reuters several economists have gone to great lengths to say that india in 20 is not facing a repeat of the 1991 balanceofpayments crisis or the asian financial crisis in 1997. The paper explores the view that the asian currency and financial crises in 1997 and 1998 reflected structural and policy distortions in the countries of the region, even if market overreaction and herding caused the plunge of exchange rates, asset prices, and economic activity to be more severe. Twenty years ago, on july 2, 1997, the thai baht broke its peg with the u. The asian financial crisis, also called the asian contagion, was a series of currency devaluations and other events that spread through many asian markets beginning in. The political economy of the asian financial crisis.
324 393 806 868 283 1357 876 1372 1306 1586 1200 639 398 103 637 1112 520 789 1330 73 633 1397 474 839 1494 1566 1080 1422 429 468 92 1368 314