Bank Crisis

1997 Asian Banking /Financial Crisis

Asian Banking / financial crisis were a period of financial crisis. That seized much of Asian countries which started on July 1997. It created fears to worldwide economic meltdown.

A) What has caused the Bank crisis?

Ans: The causes of this financial crisis are given in the following:

❖ Thailand was the first to have to float the Thai Baht this caused a rapid devaluation, which triggered a loss of confidence throughout the Asian economies. Soon, other countries were forced to devalue as investors wanted to get out of Asian currencies. The devaluation caused debt to be even more difficult to repay and countries started to default.

❖ Foreign debt-to-GDP ratios rose from100% to 167% in the four large ASEAN economies in 1993-96.

❖ Countries like Thailand, Indonesia, South Korea had large current account deficits. Financed by hot money flows (on capital account). Hot money flows were accumulated because of higher interest rates in the East.

❖ In the late 1990s, the US increased interest rates to reduce inflationary pressures. Higher interest rates in US, made the East less attractive as a place to move hot money flows. As hot money flows into the east dried up, currencies started to fall and governments struggled to keep exchange rates at their fixed level against the US Dollar.

B) How did it affect the aggregate national economy of that country?

Affect of national aggregate economy:

➢ Currencies of those countries were devaluated and sinking. Also inflation rate became higher. Like Indonesian currency rupiah was sinking.

➢ First of all most of the countries stock exchange market and its index was felled down due to this crisis. Also become more volatile. Like Thai stock market felled 75%.

➢ During the crisis countries were losing its GDP.

➢ Some renowned businesses were collapsed. Like one of the significant finance company “Finance ONE”.

C) Who were...