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1997 Financial Crisis PDF

The 1997 Asian Financial Crisis began in Thailand in July 1997 when the Thai government was forced to float the Thai baht due to a lack of foreign currency. This led to a currency crisis that spread to other Asian markets. The crisis severely impacted the Malaysian economy, causing GDP to plunge 6.2% in 1998. Exports decreased as the currency was devalued, private investment declined due to low confidence, and stock markets and asset prices fell substantially. To stimulate recovery, Malaysia reduced interest rates, boosted government spending, cut bank reserve requirements to increase lending, and took other measures to restart the private sector.

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Farhan Aizat
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165 views1 page

1997 Financial Crisis PDF

The 1997 Asian Financial Crisis began in Thailand in July 1997 when the Thai government was forced to float the Thai baht due to a lack of foreign currency. This led to a currency crisis that spread to other Asian markets. The crisis severely impacted the Malaysian economy, causing GDP to plunge 6.2% in 1998. Exports decreased as the currency was devalued, private investment declined due to low confidence, and stock markets and asset prices fell substantially. To stimulate recovery, Malaysia reduced interest rates, boosted government spending, cut bank reserve requirements to increase lending, and took other measures to restart the private sector.

Uploaded by

Farhan Aizat
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1997 FINANCIAL

CRISIS
BY GROUP 7

HOW IT ALL STARTED


The crisis started in Thailand (known in Thailand as the Tom Yum Goong) on
July 2nd, with the financial collapse of the Thai baht after the Thai RECOVERY
government was forced to float the baht due to lack of foreign currency to
support its currency peg to the U.S. dollar.  The annual rate of
At the time, Thailand had acquired a burden of foreign debt that made the
consumer price inflation
country effectively bankrupt even before the collapse of its currency. increased from 2.7
percent to 5.3 percent
In July 1997, within days of the Thai baht devaluation, the Malaysian ringgit between 1997 and
was heavily traded by speculators. The overnight rate jumped from under 8%
1998. The rate of inflation
to over 40%. This led to rating downgrades and a general sell off on the stock
and currency markets. measured in terms of the
producer price index
In 1998, the output of the real economy declined plunging the country into its increased from 2.7
first recession for many years. The construction sector contracted 23.5%,
percent to 10.7 percent
manufacturing shrunk 9% and the agriculture sector 5.9%. Overall, the
country's gross domestic product plunged 6.2% in 1998. During that year, the between 1997 and 1998
ringgit plunged below 4.7 and the KLSE fell below 270 points. In September and then declined to 3.2
that year, various defensive measures were announced to overcome the crisis. percent in 1999.

WHAT ARE THE Public expenditure led


IMPACT ON THE MEASURES TAKEN the way to recovery.
MALAYSIAN DURING THE CRISIS? Consequently,
ECONOMY contraction in total
investment slowed to 6
Interest rates were
The Malaysian economy was an percent compared to 45
significantly reduced,
import-export based economy, percent contraction in
allowing firms and
therefore during the crisis, the previous year.
currency exchange rate washighly
consumers to breathe again
beaten by the conditions. Thus, it and then to borrow, thus
decreased the exports of the improving investment and
country, due to low exchange rate consumption conditions
in the forex market.as a result,
companies could not generate
The statutory reserve
the revenues, and they were more
exposed to the risk of default. requirement was reduced to
increase liquidity, and banks
On the other hand, the private were encouraged to increase
investment also decreased due to lending.  While government
lack of confidence over the boosted its spending, to get
domestic economy. Many
the economy moving again
businesses had filed for
bankruptcy during the crisis.Apart when the private sector was
from that, stock market came in the doldrums.
down by 50%, and assets prices
also face devaluation by 40%, and
currency also depreciated by
31.4%.

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