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Table of Contents
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i. Purpose & Definitions…………………………………………………………. 3
ii. Background……………………………………………………………………. 3-4
iii. Causes of the Asian Financial Crisis………………………………………….. 4-7
iv. Contagion effect………………………………………………………………. 7-9
v. Capital control – A case study of Indonesia…………………………………... 9-10
vi. The role of IMF……………………………………………………………… 10-12
vii. Lessons learnt………………………………………………………………... 13-14
viii. Conclusion…………………………………………………………………….. 14
ix. References………………………………………………………………….... 15-17
i. Purpose & Definitions
This paper aims to explain why the Asian Financial Crisis of 1997/98 struck some countries such as Thailand, Malaysia and Indonesia, while leaving others like China and Vietnam relatively unaffected. The measures that the affected countries took to salvage their stock markets and economies will also be discussed, with particular emphasis on Indonesia and why it did not resort to capital control. Throughout this discussion, capital control is defined as regulatory control over short-term capital inflows.
ii. Background – Before 1997
The Asian Financial Crisis struck the economies of Southeast Asia in two waves of currency depreciation that began in 1997. The Thai baht, Malaysian ringgit, Philippines peso, and Indonesian rupiah were the first to be hit, followed by the Taiwan dollar, Singapore dollar, Hong Kong dollar and South Korean won after the first four currencies started to regain stability (Nanto, 1998). This abruptly ended the decade of growth that had led the very same economies to be hailed as ‘miracle economies’. From 1991 – 1996, real GDP growth rate per annum in Indonesia, Malaysia and Thailand was between 6.4 – 9.5 percent (Halim, 2000). Other macroeconomic fundamentals such as sound fiscal balances (see figure 3) in these countries pre-crisis were also quite strong, which was why many analysts did not expect the crisis. The export-led growth in the period...