1997 baht crash

The Asian financial crisis was a period of <a href="https://en.wikipedia.org/wiki/Financial_crisis" title="Financial crisis" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">financial crisis</a> that gripped much of East Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to <a href="https://en.wikipedia.org/wiki/Financial_contagion" title="Financial contagion" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">financial contagion</a>.The crisis started in <a href="https://en.wikipedia.org/wiki/Thailand" title="Thailand" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Thailand</a> (well known in Thailand as the <a href="https://en.wikipedia.org/wiki/Tom_Yam" title="Tom Yam" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Tom Yum Goong</a> crisis; <a href="https://en.wikipedia.org/wiki/Thai_language" title="Thai language" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Thai</a>: วิกฤตต้มยำกุ้ง) with the financial collapse of the <a href="https://en.wikipedia.org/wiki/Thai_baht" title="Thai baht" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Thai baht</a> after the Thai government was forced to <a href="https://en.wikipedia.org/wiki/Floating_currency" title="Floating currency" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">float</a> the baht due to lack of <a href="https://en.wikipedia.org/wiki/List_of_circulating_currencies" title="List of circulating currencies" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">foreign currency</a> to support its currency <a href="https://en.wikipedia.org/wiki/Fixed_exchange_rate" title="Fixed exchange rate" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">peg</a> to the <a href="https://en.wikipedia.org/wiki/U.S.dollar" title="U.S. dollar" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">U.S. dollar</a>. At the time, Thailand had acquired a burden of <a href="https://en.wikipedia.org/wiki/Foreign_debt" title="Foreign debt" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">foreign debt</a> that made the country effectively <a href="https://en.wikipedia.org/wiki/Bankruptcy" title="Bankruptcy" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">bankrupt</a> even before the collapse of its currency.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-1" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[1]</a>As the crisis spread, most of Southeast Asia and Japan saw slumping currencies,<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-2" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[2]</a> devalued stock markets and other asset prices, and a precipitous rise in <a href="https://en.wikipedia.org/wiki/Private_debt" title="Private debt" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">private debt</a>.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-3" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[3]</a><a href="https://en.wikipedia.org/wiki/Indonesia" title="Indonesia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Indonesia</a>, <a href="https://en.wikipedia.org/wiki/South_Korea" title="South Korea" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">South Korea</a> and <a href="https://en.wikipedia.org/wiki/Thailand" title="Thailand" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Thailand</a> were the countries most affected by the crisis. <a href="https://en.wikipedia.org/wiki/Hong_Kong" title="Hong Kong" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Hong Kong</a>, <a href="https://en.wikipedia.org/wiki/Laos" title="Laos" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Laos</a>,<a href="https://en.wikipedia.org/wiki/Malaysia" title="Malaysia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Malaysia</a> and the <a href="https://en.wikipedia.org/wiki/Philippines" title="Philippines" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Philippines</a> were also hurt by the slump. <a href="https://en.wikipedia.org/wiki/Brunei" title="Brunei" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Brunei</a>, <a href="https://en.wikipedia.org/wiki/China" title="China" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">China</a>, <a href="https://en.wikipedia.org/wiki/Singapore" title="Singapore" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Singapore</a>, <a href="https://en.wikipedia.org/wiki/Taiwan" title="Taiwan" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Taiwan</a> and <a href="https://en.wikipedia.org/wiki/Vietnam" title="Vietnam" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Vietnam</a>were less affected, although all suffered from a loss of demand and confidence throughout the region.Foreign debt-to-GDP ratios rose from 100% to 167% in the four large <a href="https://en.wikipedia.org/wiki/Association_of_Southeast_Asian_Nations" title="Association of Southeast Asian Nations" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Association of Southeast Asian Nations</a> (ASEAN) economies in 1993–96, then shot up beyond 180% during the worst of the crisis. In South Korea, the ratios rose from 13% to 21% and then as high as 40%, while the other northern <a href="https://en.wikipedia.org/wiki/Newly_industrialized_country" title="Newly industrialized country" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">newly industrialized countries</a> fared much better. Only in Thailand and South Korea did debt service-to-exports ratios rise.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-4" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[4]</a>Although most of the governments of Asia had seemingly sound <a href="https://en.wikipedia.org/wiki/Fiscal_policies" title="Fiscal policies" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">fiscal policies</a>, the <a href="https://en.wikipedia.org/wiki/International_Monetary_Fund" title="International Monetary Fund" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">International Monetary Fund</a> (IMF) stepped in to initiate a $40 billion program to stabilize the currencies of South Korea, Thailand, and Indonesia, economies particularly hard hit by the crisis. The efforts to stem a global economic crisis did little to stabilize the domestic situation in Indonesia, however. After 30 years in power, <a href="https://en.wikipedia.org/wiki/President_of_Indonesia" title="President of Indonesia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">President</a> <a href="https://en.wikipedia.org/wiki/Suharto" title="Suharto" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Suharto</a> was <a href="https://en.wikipedia.org/wiki/Fall_of_Suharto" title="Fall of Suharto" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">forced to step down</a> on 21 May 1998 in the wake of widespread rioting that followed sharp price increases caused by a drastic devaluation of the <a href="https://en.wikipedia.org/wiki/Rupiah" title="Rupiah" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">rupiah</a>. The effects of the crisis lingered through 1998. In 1998 the Philippines growth dropped to virtually zero. Only Singapore and Taiwan proved relatively insulated from the shock, but both suffered serious hits in passing, the former more so due to its size and geographical location between Malaysia and Indonesia. By 1999, however, analysts saw signs that the <a href="https://en.wikipedia.org/wiki/Economy_of_Asia" title="Economy of Asia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">economies of Asia</a> were beginning to recover.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-5" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[5]</a> After the 1997 Asian Financial Crisis, economies in the region are working toward financial stability on financial supervision.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-6" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[6]</a>Until 1999, Asia attracted almost half of the total <a href="https://en.wikipedia.org/wiki/Capital(economics)" title="Capital (economics)" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">capital</a> inflow into <a href="https://en.wikipedia.org/wiki/Developing_country" title="Developing country" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">developing countries</a>. The economies of Southeast Asia in particular maintained high interest rates attractive to foreign investors looking for a high <a href="https://en.wikipedia.org/wiki/Rate_of_return" title="Rate of return" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">rate of return</a>. As a result, the region's economies received a large inflow of money and experienced a dramatic run-up in asset prices. At the same time, the regional economies of Thailand, Malaysia, Indonesia, Singapore, and South Korea experienced high growth rates, 8–12% GDP, in the late 1980s and early 1993. This achievement was widely acclaimed by financial institutions including IMF and <a href="https://en.wikipedia.org/wiki/World_Bank" title="World Bank" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">World Bank</a>, and was known as part of the "<a href="https://en.wikipedia.org/wiki/Four_Asian_Tigers" title="Four Asian Tigers" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Asian economic miracle</a>".<div id="toc" class="toc" style="border: 1px solid rgb(170, 170, 170); padding: 7px; font-size: 13.3px; display: table; zoom: 1; color: rgb(37, 37, 37); background-color: rgb(249, 249, 249);"><div id="toctitle" style="direction: ltr; text-align: center;"><h2 style="color: black; margin: 1em 0px 0.25em; overflow: hidden; padding: 0px; border: none; font-size: 13.3px; display: inline; line-height: 1.3; background: none;">Contents</h2>  [<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#" id="togglelink" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">hide</a>] </div><ul style="list-style-type: none; margin: 0.3em 0px; padding: 0px; list-style-image: none;"><li class="toclevel-1 tocsection-1" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Credit_bubbles_and_fixed_currency_exchange_rates" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">1Credit bubbles and fixed currency exchange rates</a></li><li class="toclevel-1 tocsection-2" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Panic_amongst_lenders_and_withdrawal_of_credit" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">2Panic amongst lenders and withdrawal of credit</a></li><li class="toclevel-1 tocsection-3" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#IMF_role" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">3IMF role</a><ul style="list-style-type: none; margin: 0px 0px 0px 2em; padding: 0px; list-style-image: none;"><li class="toclevel-2 tocsection-4" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Economic_reforms" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">3.1Economic reforms</a></li><li class="toclevel-2 tocsection-5" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#IMF_and_high_interest_rates" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">3.2IMF and high interest rates</a></li></ul></li><li class="toclevel-1 tocsection-6" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Thailand" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">4Thailand</a></li><li class="toclevel-1 tocsection-7" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Indonesia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">5Indonesia</a></li><li class="toclevel-1 tocsection-8" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#South_Korea" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">6South Korea</a></li><li class="toclevel-1 tocsection-9" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Philippines" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">7Philippines</a></li><li class="toclevel-1 tocsection-10" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Hong_Kong" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">8Hong Kong</a></li><li class="toclevel-1 tocsection-11" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Malaysia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">9Malaysia</a></li><li class="toclevel-1 tocsection-12" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Singapore" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">10Singapore</a></li><li class="toclevel-1 tocsection-13" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#China" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">11China</a></li><li class="toclevel-1 tocsection-14" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#United_States_and_Japan" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">12United States and Japan</a></li><li class="toclevel-1 tocsection-15" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Consequences" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">13Consequences</a><ul style="list-style-type: none; margin: 0px 0px 0px 2em; padding: 0px; list-style-image: none;"><li class="toclevel-2 tocsection-16" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Asia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">13.1Asia</a></li><li class="toclevel-2 tocsection-17" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Outside_Asia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">13.2Outside Asia</a></li></ul></li><li class="toclevel-1 tocsection-18" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#See_also" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">14See also</a></li><li class="toclevel-1 tocsection-19" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#References" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">15References</a></li><li class="toclevel-1 tocsection-20" style="margin-bottom: 0.1em;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#External_links" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">16External links</a></li></ul></div><h2 style="font-weight: normal; margin: 1em 0px 0.25em; overflow: hidden; padding: 0px; border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(170, 170, 170); font-family: 'Linux Libertine', Georgia, Times, serif; line-height: 1.3; background: none rgb(255, 255, 255);">Credit bubbles and fixed currency exchange rates<span class="mw-editsection" style="-webkit-user-select: none; font-size: small; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: isolate; font-family: sans-serif;">[<a href="https://en.wikipedia.org/w/index.php?title=1997_Asian_financial_crisis&action=edit&section=1" title="Edit section: Credit bubbles and fixed currency exchange rates" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">edit</a>]</h2>The causes of the debacle are many and disputed. Thailand's economy developed into an <a href="https://en.wikipedia.org/wiki/Economic_bubble" title="Economic bubble" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">economic bubble</a> fueled by <a href="https://en.wikipedia.org/wiki/Hot_money" title="Hot money" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">hot money</a>. More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia, and Indonesia, which had the added complication of what was called "<a href="https://en.wikipedia.org/wiki/Crony_capitalism" title="Crony capitalism" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">crony capitalism</a>".<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-7" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[7]</a>The short-term capital flow was expensive and often highly conditioned for quick <a href="https://en.wikipedia.org/wiki/Profit(economics)" title="Profit (economics)" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">profit</a>. Development money went in a largely uncontrolled manner to certain people only, not particularly the best suited or most efficient, but those closest to the centers of power.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-8" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[8]</a>At the time of the mid-1990s, Thailand, Indonesia and South Korea had large private <a href="https://en.wikipedia.org/wiki/Current_account" title="Current account" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">current account</a> deficits and the maintenance of <a href="https://en.wikipedia.org/wiki/Fixed_exchange_rate" title="Fixed exchange rate" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">fixed exchange rates</a> encouraged external borrowing and led to excessive exposure to <a href="https://en.wikipedia.org/wiki/Foreign_exchange_risk" title="Foreign exchange risk" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">foreign exchange risk</a> in both the financial and corporate sectors.In the mid-1990s, a series of external shocks began to change the economic environment – the <a href="https://en.wikipedia.org/wiki/Devaluation" title="Devaluation" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">devaluation</a> of the Chinese <a href="https://en.wikipedia.org/wiki/Renminbi" title="Renminbi" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">renminbi</a>, and the Japanese <a href="https://en.wikipedia.org/wiki/Yen" title="Yen" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">yen</a> due to the<a href="https://en.wikipedia.org/wiki/Plaza_Accord" title="Plaza Accord" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Plaza Accord</a> of 1985, raising of U.S. interest rates which led to a strong U.S. dollar, the sharp decline in semiconductor prices; adversely affected their growth.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-9" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[9]</a> As the<a href="https://en.wikipedia.org/wiki/U.S.economy" title="U.S. economy" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">U.S. economy</a> recovered from a recession in the early 1990s, the <a href="https://en.wikipedia.org/wiki/U.S.Federal_Reserve_Bank" title="U.S. Federal Reserve Bank" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">U.S. Federal Reserve Bank</a> under <a href="https://en.wikipedia.org/wiki/Alan_Greenspan" title="Alan Greenspan" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Alan Greenspan</a> began to raise U.S. interest rates to head off inflation.This made the United States a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At the same time, Southeast Asia's export growth slowed dramatically in the spring of 1996, deteriorating their current account position.Some economists have advanced the growing exports of China as a contributing factor to ASEAN nations' export growth slowdown, though these economists maintain the main cause of the crises was excessive real estate speculation.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-10" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[10]</a> China had begun to compete effectively with other Asian exporters particularly in the 1990s after the implementation of a number of export-oriented reforms. Other economists dispute China's impact, noting that both ASEAN and China experienced simultaneous rapid export growth in the early 1990s.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-11" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[11]</a>Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. The resulting large quantities of <a href="https://en.wikipedia.org/wiki/Credit(finance)" title="Credit (finance)" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">credit</a> that became available generated a highly <a href="https://en.wikipedia.org/wiki/Leverage(finance)" title="Leverage (finance)" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">leveraged</a> economic climate, and pushed up asset prices to an unsustainable level.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-12" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[12]</a> These asset prices eventually began to collapse, causing individuals and companies to <a href="https://en.wikipedia.org/wiki/Default(finance)" title="Default (finance)" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">default</a> on debt obligations.<h2 style="font-weight: normal; margin: 1em 0px 0.25em; overflow: hidden; padding: 0px; border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(170, 170, 170); font-family: 'Linux Libertine', Georgia, Times, serif; line-height: 1.3; background: none rgb(255, 255, 255);">Panic amongst lenders and withdrawal of credit<span class="mw-editsection" style="-webkit-user-select: none; font-size: small; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: isolate; font-family: sans-serif;">[<a href="https://en.wikipedia.org/w/index.php?title=1997_Asian_financial_crisis&action=edit&section=2" title="Edit section: Panic amongst lenders and withdrawal of credit" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">edit</a>]</h2>The resulting panic among lenders led to a large withdrawal of credit from the crisis countries, causing a <a href="https://en.wikipedia.org/wiki/Credit_crunch" title="Credit crunch" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">credit crunch</a> and further bankruptcies. In addition, as foreign investors attempted to withdraw their money, the <a href="https://en.wikipedia.org/wiki/Foreign_exchange_market" title="Foreign exchange market" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">exchange market</a> was flooded with the currencies of the crisis countries, putting <a href="https://en.wikipedia.org/wiki/Depreciation(currency)" title="Depreciation (currency)" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">depreciative</a> pressure on their exchange rates. To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels (to help diminish <a href="https://en.wikipedia.org/wiki/Capital_flight" title="Capital flight" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">flight of capital</a> by making lending more attractive to investors) and to intervene in the exchange market, buying up any excess domestic currency at the <a href="https://en.wikipedia.org/wiki/Fixed_exchange_rate" title="Fixed exchange rate" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">fixed exchange rate</a> with<a href="https://en.wikipedia.org/wiki/Foreign_reserves" title="Foreign reserves" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">foreign reserves</a>. Neither of these policy responses could be sustained for long.Very high interest rates, which can be extremely damaging to an economy that is healthy, wreaked further havoc on economies in an already fragile state, while the central banks were hemorrhaging foreign reserves, of which they had finite amounts. When it became clear that the tide of capital fleeing these countries was not to be stopped, the authorities ceased defending their fixed exchange rates and allowed their currencies to <a href="https://en.wikipedia.org/wiki/Floating_exchange_rate" title="Floating exchange rate" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">float</a>. The resulting depreciated value of those currencies meant that foreign currency-denominated <a href="https://en.wikipedia.org/wiki/Liability(accounting)" title="Liability (accounting)" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">liabilities</a> grew substantially in domestic currency terms, causing more bankruptcies and further deepening the crisis.Other economists, including <a href="https://en.wikipedia.org/wiki/Joseph_Stiglitz" title="Joseph Stiglitz" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Joseph Stiglitz</a> and <a href="https://en.wikipedia.org/wiki/Jeffrey_Sachs" title="Jeffrey Sachs" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Jeffrey Sachs</a>, have downplayed the role of the real economy in the crisis compared to the financial markets. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic <a href="https://en.wikipedia.org/wiki/Bank_run" title="Bank run" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">bank run</a> prompted by a sudden risk shock. Sachs pointed to strict monetary and contractory fiscal policies implemented by the governments on the advice of the IMF in the wake of the crisis, while <a href="https://en.wikipedia.org/wiki/Frederic_Mishkin" title="Frederic Mishkin" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Frederic Mishkin</a> points to the role of<a href="https://en.wikipedia.org/wiki/Asymmetric_information" title="Asymmetric information" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">asymmetric information</a> in the financial markets that led to a "<a href="https://en.wikipedia.org/wiki/Herd_mentality" title="Herd mentality" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">herd mentality</a>" among investors that magnified a small risk in the real economy. The crisis has thus attracted interest from <a href="https://en.wikipedia.org/wiki/Behavioral_economics" title="Behavioral economics" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">behavioral economists</a> interested in <a href="https://en.wikipedia.org/wiki/Market_psychology" title="Market psychology" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">market psychology</a>.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-13" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[13]</a>Another possible cause of the sudden risk shock may also be attributable to the <a href="https://en.wikipedia.org/wiki/Transfer_of_the_sovereignty_of_Hong_Kong" title="Transfer of the sovereignty of Hong Kong" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">handover of Hong Kong sovereignty on 1 July 1997</a>. During the 1990s, hot money flew into the Southeast Asia region through <a href="https://en.wikipedia.org/wiki/Financial_hub" title="Financial hub" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">financial hubs</a>, especially Hong Kong. The investors were often ignorant of the actual fundamentals or risk profiles of the respective economies, and once the crisis gripped the region, coupled with the political uncertainty regarding the future of Hong Kong as an Asian financial centre led some investors to withdraw from Asia altogether. This shrink in investments only worsened the financial conditions in Asia<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-14" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[14]</a> (subsequently leading to the depreciation of the <a href="https://en.wikipedia.org/wiki/Thai_baht" title="Thai baht" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Thai baht</a> on 2 July 1997).<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-15" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[15]</a>Several case studies on the topic – Application of <a href="https://en.wikipedia.org/wiki/Social_network_analysis" title="Social network analysis" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">network analysis</a> of a financial system; explains the <a href="https://en.wikipedia.org/wiki/Interconnectivity" title="Interconnectivity" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">interconnectivity</a> of <a href="https://en.wikipedia.org/wiki/Financial_market" title="Financial market" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">financial markets</a>, and the significance of the<a href="https://en.wikipedia.org/wiki/Network_theory#Network_robustness" title="Network theory" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">robustness</a> of <a href="https://en.wikipedia.org/wiki/Network_theory#Assortative_and_Disassortative_mixing" title="Network theory" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">hubs</a> or the main nodes.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-AFC-NA-15-16" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[16]</a><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-AFC-NA-11-17" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[17]</a><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-AFC-NA-12-18" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[18]</a> Any <a href="https://en.wikipedia.org/wiki/Externality#Examples" title="Externality" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">negative externalities</a> in the hubs creates a <a href="https://en.wikipedia.org/wiki/Ripple_effect" title="Ripple effect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">ripple effect</a> through the financial system and the economy (and, the connected economies) as a whole.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-AFC-NA-16-19" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[19]</a><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-AFC-NA-13-20" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[20]</a><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-AFC-NA-14-21" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[21]</a>The foreign ministers of the 10 ASEAN countries believed that the well co-ordinated manipulation of their currencies was a deliberate attempt to destabilize the ASEAN economies. Former Malaysian Prime Minister <a href="https://en.wikipedia.org/wiki/Mahathir_Mohamad" title="Mahathir Mohamad" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Mahathir Mohamad</a> accused <a href="https://en.wikipedia.org/wiki/George_Soros" title="George Soros" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">George Soros</a> of ruining Malaysia's economy with "massive <a href="https://en.wikipedia.org/wiki/Currency_speculation" title="Currency speculation" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">currency speculation</a>". Soros<a href="https://en.wikipedia.org/wiki/George_Soros#Currency_speculation" title="George Soros" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">claims to have been a buyer</a> of the ringgit during its fall, having <a href="https://en.wikipedia.org/wiki/Short(finance)" title="Short (finance)" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">sold it short</a> in 1997.At the 30th ASEAN Ministerial Meeting held in <a href="https://en.wikipedia.org/wiki/Subang_Jaya" title="Subang Jaya" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Subang Jaya</a>, Malaysia, the foreign ministers issued a joint declaration on 25 July 1997 expressing serious concern and called for further intensification of ASEAN's cooperation to safeguard and promote ASEAN's interest in this regard.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-22" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[22]</a> Coincidentally, on that same day, the central bankers of most of the affected countries were at the EMEAP (Executive Meeting of East Asia Pacific) meeting in Shanghai, and they failed to make the "New Arrangement to Borrow" operational. A year earlier, the finance ministers of these same countries had attended the 3rd <a href="https://en.wikipedia.org/wiki/APEC" title="APEC" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">APEC</a> finance ministers meeting in <a href="https://en.wikipedia.org/wiki/Kyoto" title="Kyoto" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Kyoto</a>, Japan, on 17 March 1996, and according to that joint declaration, they had been unable to double the amounts available under the "General Agreement to Borrow" and the "Emergency Finance Mechanism".As such, the crisis could be seen as the failure to adequately build capacity in time to prevent <a href="https://en.wikipedia.org/wiki/Currency_Manipulation" title="Currency Manipulation" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">currency manipulation</a>. This hypothesis enjoyed little support among economists, however, who argue that no single investor could have had enough impact on the market to successfully manipulate the currencies' values. In addition, the level of organization necessary to coordinate a massive exodus of investors from Southeast Asian currencies in order to manipulate their values rendered this possibility remote.[<a href="https://en.wikipedia.org/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">citation needed</a>]<h2 style="font-weight: normal; margin: 1em 0px 0.25em; overflow: hidden; padding: 0px; border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(170, 170, 170); font-family: 'Linux Libertine', Georgia, Times, serif; line-height: 1.3; background: none rgb(255, 255, 255);">IMF role<span class="mw-editsection" style="-webkit-user-select: none; font-size: small; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: isolate; font-family: sans-serif;">[<a href="https://en.wikipedia.org/w/index.php?title=1997_Asian_financial_crisis&action=edit&section=3" title="Edit section: IMF role" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">edit</a>]</h2>Such was the scope and the severity of the collapses involved that outside intervention, considered by many as a new kind of colonialism,<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-23" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[23]</a> became urgently needed. Since the countries melting down were among not only the richest in their region, but in the world, and since hundreds of billions of dollars were at stake, any response to the crisis was likely to be cooperative and international, in this case through the <a href="https://en.wikipedia.org/wiki/International_Monetary_Fund" title="International Monetary Fund" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">International Monetary Fund</a> (IMF). The IMF created a series of <a href="https://en.wikipedia.org/wiki/Bail_out(finance)" title="Bail out (finance)" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">bailouts</a> ("rescue packages") for the most-affected economies to enable affected nations to avoid <a href="https://en.wikipedia.org/wiki/Default_(finance)" title="Default (finance)" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">default</a>, tying the packages to currency, banking and financial system reforms.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-24" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[24]</a><h3 style="margin: 0.3em 0px 0px; overflow: hidden; padding-top: 0.5em; padding-bottom: 0px; border-bottom-style: none; font-size: 1.2em; line-height: 1.6; background: none rgb(255, 255, 255);">Economic reforms<span class="mw-editsection" style="-webkit-user-select: none; font-size: small; font-weight: normal; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: isolate;">[<a href="https://en.wikipedia.org/w/index.php?title=1997_Asian_financial_crisis&action=edit&section=4" title="Edit section: Economic reforms" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">edit</a>]</h3>The IMF's support was conditional on a series of economic reforms, the "<a href="https://en.wikipedia.org/wiki/Structural_adjustment" title="Structural adjustment" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">structural adjustment</a> package" (SAP). The SAPs called on crisis-struck nations to reduce government spending and deficits, allow <a href="https://en.wikipedia.org/wiki/Insolvency" title="Insolvency" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">insolvent</a> banks and financial institutions to fail, and aggressively raise interest rates. The reasoning was that these steps would restore confidence in the nations' fiscal <a href="https://en.wikipedia.org/wiki/Solvency" title="Solvency" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">solvency</a>, penalize insolvent companies, and protect currency values. Above all, it was stipulated that IMF-funded capital had to be administered rationally in the future, with no favored parties receiving funds by preference. In at least one of the affected countries the restrictions on foreign ownership were greatly reduced.<a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-25" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">[25]</a>