Business, Legal & Accounting Glossary
The Asian financial crisis was a financial crisis of 1997 that crippled the economies of most of Asia. Commonly, known as the IMF crisis, there prevailed a constant fear of worldwide financial contagion due to this crisis. It is known that the initiation of the Asian crisis took place with the financial collapse of the Thai baht. In Thailand, due to sudden fluctuations in the financial situation, the government decided to drift baht against the US dollars. This aggravated the situation to such extent that a severe financial tension emerged.
There were several causes one leading to other, responsible for the ineradicable Asian crisis. Some of the reasons can be summarized as:
The effect of the Asian crisis was such that it almost crippled the economy of the region. Let’s discuss the effects of the crisis on various sectors of the economy.
When talking about any economy, the thought of equity market comes first. Since, stock markets indicate economy health of a country, during the Asian crisis there were quick falls in the stock markets. Another major effect was a sharp decline in the value of several regional currencies against the dollar. Interest rates increased significantly during the crisis. This resulted in diminishing availability of funds for borrowing. Another major system decreased in real economic activities as there was a rise in business bankruptcies and unemployment.
Despite the sound fiscal policies of the governments of Asia, nothing much could be done to solve the crisis. IMF gave rescue funding to the most badly affected economies. It was IMF who intervened and provided a $40 billion agenda to stabilize the currencies of South Korea, Thailand, and Indonesia, which were the most badly affected economies. Reforms were made in fiscal policies and there was tightening of policy to limit the borrowing of capital from overseas. Monetary policy was also changed and a high-interest rate policy was adopted that reduced external capital inflows while sustaining competition in export. By the end of 1999, there was a sign of recovery of the Asian economies.
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This glossary post was last updated: 26th March, 2020 | 2 Views.