ASIAN FINANCIAL CRISIS 1997

Presented By: Group 5

Simranjeet Singh Sodhi 1301-413
Aditya Vikram Agrawal 1301-304
Bhuvnesh Garg 1301-331
Rohan Sachar 1301-396
Saurabh Arora 1301-404
Veenu Bajaj -1301-432
Vineet P. Maniar 1301-438

INTRODUCTION

Financial Crisis Began in July 1997

Epicentre Thailand led to crisis due
to
Fixed Currency to Floating
Currency
Excessive foreign exposure
Real Estate Speculation
Resulting crisis affected Phillippines,
Malyasia, Indonesia and Korea

PRE-CRISIS SCENARIO
Rapid expansion of economy since 1990 in Thailand
High growth rates due to
Maintain high interest rates to attract foreign capital
Rapid industrialization
Real estate speculation

Encouraged exports by extending line of credit beyond capacity

Banks continued to raise capital in international markets
Money raised went to few families or groups close to government
Bottom-line of companies started deteriorating

1. Reason to move Thai Baht from Floating to Fixed Rate Regime

Rapid expansion of economy through borrowed capital
Excessive investment led to creation of Bubble in the economy
Speculation started about fall of Thai baht globally
In May and June 1997, Government took steps to quell fears
Direct measures Using hard currency reserves
Indirect measures Raising interest rates
Speculation started again early July was the final nail for Thai
authorities

Finally on July 2, 1997, Thai Central bank moved from fixed rate regime
to floating rate regime
Thai Baht fell from THB25/USD to nearly THB40/USD (roughly 40%)
till November 1997

2. Reasons for Thai Baht to depreciate by 38%

Thai currency moved from fixed rate regime to Floating rate regime in
July 1997
Capital Outflows increased as rates in USA started increasing
Thai economy expanded rapidly in early 1990s due to strong inflows
This created a bubble and concerns over Thailands ability to pay
started rising
Government already used precious hard currency reserves to support
economy and raised interest rates beyond sustainable levels
Due to these factors, once the currency was pegged to market rates
(floating rate regime) Thai Baht declined 38% from THB25/$ to
THB40/$ in 4 months till November 2007

3. Reasons for Currency crisis spreading to Neighbouring

Countries
South Asian countries like Philippines, Korea, Thailand, Malaysia
grew rapidly during early 1990s
Some countries had similar characteristics while others had
different characteristics than Thailand
Thailand was under tremendous speculative pressure same
speculation started to spread to neighbouring countries

This was due to tequila effect currency devaluation affected all

South Asian nations except China as Renminbi was not freely
convertible
Once overly valued Thailand Baht declined, all countries followed
suit, partly due to structural weakness and partly due to speculation

THANK YOU