The Southeast Asian Economic Crisis
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Code : ECC0004
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Region : Asia |
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Abstract: In the early 1990s, Mexican imports were more than their exports. To finance this gap in foreign trade, the Mexican government introduced short-term dollar indexed bonds. The resultant increase in the public debt led to the Mexican crisis and later to devaluation of the Mexican peso. The economists had predicted the Mexican crisis, much before it took place. Similarly, the International Monetary Fund (IMF) authorities had predicted the Southeast Asian crisis, which began in Thailand in 1997. During 1995-1996, the capital inflow into the Southeast Asian nations increased in the form of foreign portfolio investments. In 1996, Thailand had accumulated a current account deficit of 7.9% of its gross domestic product (GDP). Speculation in the currency market and economic instability led to the devaluation of the Thai baht. This resulted in a contagion effect on other Asian countries, as they devalued their respective currencies and changed their exchange rate policies. |
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Pedagogical Objectives:
Keywords : Economic Crisis Case Study, Fixed exchange rate system, Current account deficit, Foreign exchange reserves, Short-term dollar indexed debt, Currency pegging, Basket of currencies, Thai baht, Korean won, Indonesian rupiah, Foreign portfolio investment, South Korean chaebols, Inflation rate, Bank of Thailand, Malaysian Central Bank, Monetary Authority of Singapore, Japan export-import bank, Structural reforms, contagion effect
Contents :
» Rising Trade and Current Account Deficits
» Foreign Short-term Debt and Financial Sector
» Shift in the Market Conditions
» After the Crisis
