The Asian financial crisis was a period of financial crisis that gripped
much of Asia beginning in July 1997, and raised fears of a worldwide
economic meltdown due to financial contagion.
The crisis started
in Thailand (well known by the Thais as วิกฤตต้มยำกุ้ง, literally
translated as Tom Yam Kung crisis) with the financial collapse of the
Thai baht after the Thai government was forced to float the baht due to
lack of foreign currency to support its fixed exchange rate, cutting its
peg to the US$, after exhaustive efforts to support it in the face of a
severe financial overextension that was in part real estate driven. At
the time, Thailand had acquired a burden of foreign debt that made the
country effectively bankrupt even before the collapse of its currency.
As the crisis spread, most of Southeast Asia and Japan saw slumping
currencies, devalued stock markets and other asset prices, and a
precipitous rise in private debt.
Indonesia, South Korea and
Thailand were the countries most affected by the crisis. Hong Kong,
Malaysia, Laos and the Philippines were also hurt by the slump. China,
Taiwan, Singapore, Brunei and Vietnam were less affected, although all
suffered from a loss of demand and confidence throughout the region.
Foreign
debt-to-GDP ratios rose from 100% to 167% in the four large Association
of Southeast Asian Nations (ASEAN) economies in 1993--96, then shot up
beyond 180% during the worst of the crisis. In South Korea, the ratios
rose from 13 to 21% and then as high as 40%, while the other northern
newly industrialized countries fared much better. Only in Thailand and
South Korea did debt service-to-exports ratios rise.
Although
most of the governments of Asia had seemingly sound fiscal policies, the
International Monetary Fund (IMF) stepped in to initiate a $40 billion
program to stabilize the currencies of South Korea, Thailand, and
Indonesia, economies particularly hard hit by the crisis. The efforts to
stem a global economic crisis did little to stabilize the domestic
situation in Indonesia, however. After 30 years in power, President
Suharto was forced to step down on 21 May 1998 in the wake of widespread
rioting that followed sharp price increases caused by a drastic
devaluation of the rupiah. The effects of the crisis lingered through
1998. In 1998 the Philippines growth dropped to virtually zero. Only
Singapore and Taiwan proved relatively insulated from the shock, but
both suffered serious hits in passing, the former more so due to its
size and geographical location between Malaysia and Indonesia. By 1999,
however, analysts saw signs that the economies of Asia were beginning to
recover. After the 1997 Asian Financial Crisis, economies in the region
are working toward financial stability on financial supervision.
http://en.wikipedia.org/wiki/Asian_cr...
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