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Explain the dimensions of the Asian financial crisis in 1997, focused in Thailand, what caused it,...

Explain the dimensions of the Asian financial crisis in 1997, focused in Thailand, what caused it, and how it was triggered. Make sure you are very detailed in this part. Assume the reader does not know anything about the case. Also make sure own words are used, no copy and paste from wikipedia please.

Expert Solution

Asian Financial Crisis in 1997

Mainly impacted Thailand, Singapore, South Korea, Hong Kong, Malasiya, Indonesia.

Background: Duging period of 1990 - 1996 there was a huge foreign investment in these countries. The reason behind this inprecedent growth was huge increase in export sector which was growing upto18% in some of these countries. During these period growth was high, inflation was in control, robust investment and there was budget surplus. Everything was looking good as pwe economic perspective.

Main Reasons for this crisis:

1. Cheap labour advantage went from these countries to China.

2. Crony relationship between politicians, banks and businesses.

3. Overoptimistic, greedy, wasteful and arrogant policies.

4. Derivative and wasteful spending.

Asian Financial Crisis and Thailand:

1. In Feb and March of 1997 Thailand government took out $23 Million in forward contract to defend the Bhat and pay the import. After some time they canceled then by realizing it is undermining the Bhat. Which lead to huge sell off of this contracts and devaluation of Bhat.

2. In July 1997 government decided to go with floating exchange system, which leads to upto 30% devaluation in Bhat.

3. Due to this Thai government almost spent $10 billion to save its currency.

4. Due to this Thai stock market declined 41% currency depriciated 56% and many banks or fiannacial institutions were on the cerge of solvency.

Causes of this Crisis in Thailand:

1. Massive borrowing of dollars and invested in speculative real estates.

2. As the real estate sector was flying high on speculation, businesses were struggling with high interest rates as well as banking sector were unable to provide loans.

3. People were having huge debt due to easy availability of credits through credit cards.

4.Rakesh Saxena was a financial adviser to a Thai bank whose failure caused a crisis of confidence that helped spark the 1997 Asian financial meltdown. He made millions of dollars from fraudulent loans to cronies of the bank’s management.

jeff jeffy answered 2 years ago

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