GROUP MEMEBERS • SHANIKA DILRUKSHI

• SACHIN ABEYKOON

• SACHINI UDUGE

• UGEEMA DE SILVA

• SHAKTHI DISSANAYAKE

• AVISHA SENEVIRATHNE

• PIYATH GUNAWARDENA

• SINTHUJA ESWARAN

FINANCIAL CRISIS

Situation of a country’s economy when they find themselves in an

unmanageable lifestyle

Debt of a country equalizes to the income of a nation.

It causes devaluation of currencies and stock

ASIAN FINANCIAL CRISIS

Unsustainable lifestyle was maintained in Asian markets

Aroused in July 1997

Also called Asian contagion

It began and spread throughout Asia resulting currency devaluations

ASIA BEFORE FINANCIAL CRISIS

Asian countries had an extraordinary records of economic performances in 1994-1997

Asian markets went through:

Fast economic growth,

Low inflations,

Strong financial positions a stability

Increases saving rates

Open economies

Blooming export divisions

flourishing Asian markets did not predict any financial crisis

BEGINNING OF ASIAN FINANCIAL CRISIS

Began from Thailand (Tom Yum Goong crisis)

IMF (International Monetary Fund)

Thailand Authorities was notified about the upcoming crisis by IMF

Convincing Thailand was a failure

IMF assumed that the Thailand were tolerable to the crisis.

Occurred due to the shortage of foreign currency to upkeep its stable

exchange rate.

AFFECTED COUNTRIES

All countries underwent a loss of demand and self-confidence

But in a different degree of impact

Highly affected countries:- Indonesia, South Korea, and Thailand.

Moderate impact to :- Hong Kong, Malaysia and Philippines.

Least impact to :- Japan, China, Singapore and Vietnam.

AT THE END OF ASIAN FINANCIAL CRISIS

This crisis spread throughout the Asian markets.

It caused:

Collapsing currencies

Stock market crashes

Devalued assets

Reduced import revenues

Increment in private debt

ROLE OF IMF AFTER THE CRISIS

Adopt to protective strategies to safeguard the stability of their own currency.

Affected authorities requested help from IMF

IMF

provided financial assistance

provided the biggest loans in its history.

and the World Bank then secured the financial stability

(1)

Low interests were provided for funds in Asia

Investors shifted extensive amounts of foreign funds

Asian underwent economic boom

But there was a poor corporate control and weak investment systems

It left the foreign capital unproductive.

(2)

Acquired dollar-denominated debt.

Fixed exchange rates

pictured them an incorrect sense of safe keeping

(3)

Exports of Asian countries were weak

Because of the: Indebtedness of US dollar in compared to Yen Weakening value of china’s Yuan in 1994 NAFTA following market collapses

extensive foreign funds and wilting exports

enlarging account deficiencies

IMPACT OF ASIAN FINANCIAL CRISIS TO DIFFERENT

COUNTRIES

THAILAND

IMPACT TO THAILAND

Huge downsizings in financial assets, constructions and stocks

Population was left unemployed

600,000 foreign employees left Thailand

75% dropped in Thai Stock market

Thai finance companies collapsed

IMF ROLE TO THAILAND

Provided a helping hand to Thailand

Provided a set of loans and investments.

THAILAND AFTER THE FINANCIAL CRISIS

Stabilized its budget

Paid off their debt to IMF

PHILIPPINES

Philippines Pesos (PHP) is the currency of Philippines

PHP was devalued from 26 ₱ to 55.75 ₱ against 1 US dollar

Later after the PHP was appreciated to 53 ₱ in 2001

And PHP was appreciated to 41 ₱ in 2007

MALAYSIA

IMPACT TO MALAYSIA

Malaysian ringgit (MYR) is the currency of Malaysia

Devaluation of Thai baht in July 1997 increased demand for MYR

In 1997 MYR devalued from 2.50RM to 4.57RM against 1 US dollar

GDP dropped by 6.2% in 1998

Ultimately Malaysian economy dropped the country to collapse.

HOW MALAYSIA OVRCAME

Various protective measures were taken into action

Malaysian authorities imposed capital controls

Pegged the ringgit at a value of 3.8RM to 1 US dollar.

They refused the aids of IMF

Established different task force agencies.

JAPAN

Japan markets were also hit but the markets did not collapse

40% of the Japan’s exports were sent to Asian markets

Japan had to run on a trade deficit

This decreased the Japanese GDP growth rate from 5% to 1.6%

Led to an increment in bankruptcies in Japan.

1950 SEOUL 2015

Shutting down all the merchant banks.

Economy collapsed quarterly at an average rate of -6.65%.

The finance sector was loaded with non-performing loans for aggressive

expansions.

Excess debt of Chaebols’ directed them to failures and takeovers.

The Seoul stock exchange fell by 11.2%

$5 billion venture of Hyundai Motors, Kia Motors. Samsung Motors was dissolved due to the crisis.

The South Korean won decreased to more than 1,700 per U.S. dollar from around 800.

• Nation’s financial problems were handled with the arrangements by the South Korean

government and debt exchanges.

• Much of South Korea's recovery from the Crisis was credited to labor modifications and

alternate funding sources.

• GDP growth had risen to 5.4% by the first quarter of 1999, and strong growth in currency lead

to an annual growth of 10.5%.

In order to provide a helping hand to South Korea IMF

offered USD $21 billion loan as a part of USD $58.4

billion bailout plan by December 1997.

This lead Koreas situation even worse.

After the Financial Crisis, many are aware on preventing such in Future.

Prof. Gray B. Gorton’s new type of test for financial institutions and banks.

Central Banks potential to end future crisis with their experiences on 1997.

The design of '' Dodd Frank Act'' to prevent future financial crisis.

CONCLUSION

1997 Asian markets were living an unmanageable lifestyle

began with Thailand and was spread through the Asian markets

Major reasons

extensive amounts of foreign funds

fixed exchange rate

poor corporate control, weak investment systems

less exports

ASIAN CRISIS CAUSED:

a devaluation of currencies

led to stock market crashes

reduced the trade revenues

increased their private debt.

LATER ASIAN MARKETS:

increased tax revenues

stabilized their financial markets

paid off the debts to IMF.

IMF provided loans and investments.