Long Term Capital Mngmt LTCM

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</font></div><div><div><font size="4" face="Times New Roman"><b>Long-Term Capital Management </b>L.P. (LTCM) was a hedge fund management firm[1] based in Greenwich, Connecticut that used absolute-return trading strategies combined with high financial leverage. <b>The firm's master hedge fund, Long-Term Capital Portfolio L.P., collapsed in the late 1990s,</b> leading to an agreement on September 23, 1998 among 16 financial institutions — which included Bankers Trust, Barclays, Bear Stearns, Chase Manhattan Bank, Credit Agricole, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Paribas, Salomon Smith Barney, Societe Generale, and UBS — for a $3.6 billion recapitalization (bailout) under the supervision of the Federal Reserve.[2]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">LTCM was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and <span style="background-color: rgb(255, 255, 102);">Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of<b> derivatives</b>".[3] Initially successful with annualized return of over 21% (after fees) in its first year, 43% in the second year and 41% in the third year, in 1998 it lost $4.6 billion in less than four months following the 1997 Asian financial crisis and 1998 Russian financial crisis requiring financial intervention by the Federal Reserve, with the fund liquidating and dissolving in early 2000.</span></font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Contents  [hide] </font></div><div><font size="4" face="Times New Roman">1 Founding</font></div><div><font size="4" face="Times New Roman">2 Trading strategies</font></div><div><font size="4" face="Times New Roman">3 Downturn</font></div><div><font size="4" face="Times New Roman">4 1998 bailout</font></div><div><font size="4" face="Times New Roman">5 Aftermath</font></div><div><font size="4" face="Times New Roman">6 See also</font></div><div><font size="4" face="Times New Roman">7 Notes</font></div><div><font size="4" face="Times New Roman">8 Bibliography</font></div><div><font size="4" face="Times New Roman">9 Further reading</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Founding[edit]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">LTCM Partners</font></div><div><font size="4" face="Times New Roman">John W. Meriwether<span class="Apple-tab-span" style="white-space:pre"> </span>Former vice chair and head of bond trading at Salomon Brothers; MBA, University of Chicago</font></div><div><font size="4" face="Times New Roman">Robert C. Merton<span class="Apple-tab-span" style="white-space:pre"> </span>Leading scholar in finance; Ph.D., Massachusetts Institute of Technology; Professor at Harvard University</font></div><div><font size="4" face="Times New Roman">Myron S. Scholes<span class="Apple-tab-span" style="white-space:pre"> </span>Co-author of Black–Scholes model; Ph.D., University of Chicago; Professor at Stanford University</font></div><div><font size="4" face="Times New Roman">David W. Mullins Jr.<span class="Apple-tab-span" style="white-space:pre"> </span>Vice chairman of the Federal Reserve; Ph.D. MIT; Professor at Harvard University; was seen as potential successor to Alan Greenspan</font></div><div><font size="4" face="Times New Roman">Eric Rosenfeld<span class="Apple-tab-span" style="white-space:pre"> </span>Arbitrage group at Salomon; Ph.D. MIT; former Harvard Business School professor</font></div><div><font size="4" face="Times New Roman">William Krasker<span class="Apple-tab-span" style="white-space:pre"> </span>Arbitrage group at Salomon; Ph.D. MIT; former Harvard Business School professor</font></div><div><font size="4" face="Times New Roman">Gregory Hawkins<span class="Apple-tab-span" style="white-space:pre"> </span>Arbitrage group at Salomon; Ph.D. MIT; worked on Bill Clinton's campaign for Arkansas state attorney general</font></div><div><font size="4" face="Times New Roman">Larry Hilibrand<span class="Apple-tab-span" style="white-space:pre"> </span>Arbitrage group at Salomon; Ph.D. MIT</font></div><div><font size="4" face="Times New Roman">James McEntee<span class="Apple-tab-span" style="white-space:pre"> </span>Bond-trader</font></div><div><font size="4" face="Times New Roman">Dick Leahy<span class="Apple-tab-span" style="white-space:pre"> </span>Executive at Salomon</font></div><div><font size="4" face="Times New Roman">Victor Haghani<span class="Apple-tab-span" style="white-space:pre"> </span>Arbitrage group at Salomon; Masters in Finance, LSE</font></div><div><font size="4" face="Times New Roman">John W. Meriwether headed Salomon Brothers' bond trading desk until he resigned in 1991 amid a trading scandal.[4]</font></div><div><font size="4" face="Times New Roman">
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</font></div><div><font size="4" face="Times New Roman">Myron S. Scholes (left) and Robert C. Merton were principals at LTCM.</font></div><div><font size="4" face="Times New Roman">
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</font></div><div><font size="4" face="Times New Roman">In 1993 he created Long-Term Capital as a hedge fund and<span style="background-color: rgb(255, 255, 102);"> recruited several Salomon bond traders</span>—Larry Hilibrand and Victor Haghani in particular would wield substantial clout[5]—and two future winners of the Nobel Memorial Prize, Myron S. Scholes and Robert C. Merton.[6][7] Other principals included Eric Rosenfeld, Greg Hawkins, William Krasker, Dick Leahy, James McEntee, Robert Shustak, and David W. Mullins Jr.</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">The company consisted of Long-Term Capital Management (LTCM), a company incorporated in Delaware but based in Greenwich, Connecticut. LTCM managed trades in Long-Term Capital Portfolio LP, a partnership registered in the Cayman Islands. The fund's operation was designed to have extremely low overhead; trades were conducted through a partnership with Bear Stearns and client relations were handled by Merrill Lynch.[8]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Meriwether chose to start a hedge fund to avoid the financial regulation imposed on more traditional investment vehicles, such as mutual funds, as established by the Investment Company Act of 1940—funds which accepted stakes from 100 or fewer individuals with more than $1 million in net worth each were exempt from most of the regulations that bound other investment companies.[9] In late 1993, Meriwether approached several "high-net-worth individuals" in an effort to secure start-up capital for Long-Term Capital Management. With the help of Merrill Lynch, LTCM secured hundreds of millions of dollars from business owners, celebrities and even private university endowments. The bulk of the money, however, came from companies and individuals connected to the financial industry.[10] By 24 February 1994, the day LTCM began trading, the company had amassed just over $1.01 billion in capital.[11]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Trading strategies</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">The company used complex mathematical models to take advantage of fixed income arbitrage deals (termed convergence trades) usually with U.S., Japanese, and European government bonds. Government bonds are a "fixed-term debt obligation," meaning that they will pay a fixed amount at a specified time in the future.[12] Differences in the bonds' present value are minimal, so according to economic theory any difference in price will be eliminated by arbitrage. Unlike differences in share prices of two companies, which could reflect differing underlying fundamentals, price differences between a 30-year treasury bond and a 29-and-three-quarter-year-old treasury bond should be minimal—both will see a fixed payment roughly 30 years in the future. However, small discrepancies arose between the two bonds because of a difference in liquidity.[13] By a series of financial transactions, essentially amounting to buying the cheaper 'off-the-run' bond (the 29-and-three-quarter-year-old bond) and shorting the more expensive, but more liquid, 'on-the-run' bond (the 30-year bond just issued by the Treasury), it would be possible to make a profit as the difference in the value of the bonds narrowed when a new bond was issued.</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">LTCM also attempted creating a splinter fund in 1996 called LTCM-X that would invest in even higher risk trades and focus on Latin American markets. LTCM turned to UBS bank to invest in and write the warrant for this new spin-off company.[14]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">As LTCM's capital base grew, they felt pressed to invest that capital and had run out of good bond-arbitrage bets. This led LTCM to undertake more aggressive trading strategies. Although these trading strategies were market neutral, i.e. they were not dependent on overall interest rates or stock prices going up (or down), they were not convergence trades as such. By 1998, LTCM had extremely large positions in areas such as merger arbitrage (betting whether mergers would be completed or not) and S&P 500 options (net short long-term S&P volatility). LTCM had become a major supplier of S&P 500 vega, which had been in demand by companies seeking to essentially insure equities against future declines.[15]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Because these differences in value were minute—especially for the convergence trades—the fund needed to take highly-leveraged positions to make a significant profit. At the beginning of 1998, the firm had equity of $4.72 billion and had borrowed over $124.5 billion with assets of around $129 billion, for a debt-to-equity ratio of over 25 to 1.[16] It had off-balance sheet derivative positions with a notional value of approximately $1.25 trillion, most of which were in interest rate derivatives such as interest rate swaps. The fund also invested in other derivatives such as equity options.</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Downturn[edit]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">The value of $1,000 invested in LTCM,[17] the Dow Jones Industrial Average and invested monthly in U.S. Treasuries at constant maturity.</font></div><div><font size="4" face="Times New Roman">Main articles: 1997 Asian financial crisis and 1998 Russian financial crisis</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Although much success within the financial markets arises from immediate-short term turbulence and the ability of fund managers to identify informational asymmetries, factors giving rise to the downfall of the fund were established before the 1997 East Asian financial crisis. In May and June 1998 returns from the fund were -6.42% and -10.14% respectively, reducing LTCM's capital by $461 million. This was further aggravated by the exit of Salomon Brothers from the arbitrage business in July 1998. Such losses were accentuated through the 1998 Russian financial crisis in August and September 1998, when the Russian government defaulted on their bonds.[18] Panicked investors sold Japanese and European bonds to buy U.S. treasury bonds. The profits that were supposed to occur as the value of these bonds converged became huge losses as the value of the bonds diverged. <span style="background-color: rgb(255, 255, 102);">By the end of August, the fund had lost $1.85 billion in capital.</span></font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">As a result of these losses, LTCM had to liquidate a number of its positions at a highly unfavorable moment and suffer further losses. A good illustration of the consequences of these forced liquidations is given by Lowenstein (2000).[19] He reports that LTCM established an arbitrage position in the dual-listed company (or "DLC") Royal Dutch Shell in the summer of 1997, when Royal Dutch traded at an 8%-10% premium relative to Shell. In total $2.3 billion was invested, half of which was "long" in Shell and the other half was "short" in Royal Dutch.[20]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">LTCM was essentially betting that the share prices of Royal Dutch and Shell would converge. This might have happened in the long run, but due to its losses on other positions, LTCM had to unwind its position in Royal Dutch Shell. Lowenstein reports that the premium of Royal Dutch had increased to about 22%, which implies that LTCM incurred a large loss on this arbitrage strategy. LTCM lost $286 million in equity pairs trading and more than half of this loss is accounted for by the Royal Dutch Shell trade.[21]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">The company, which was providing annual returns of almost 40% up to this point, experienced a flight-to-liquidity. In the first three weeks of September, LTCM's equity tumbled from $2.3 billion at the start of the month to just $400 million by September 25. With liabilities still over $100 billion, this translated to an effective leverage ratio of more than 250-to-1.[22]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman"><b>1998 bailout</b></font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman" style="background-color: rgb(255, 255, 102);">On September 23, 1998, the chiefs of some of the largest investment firms of Wall Street—Bankers Trust, Bear Stearns, Chase Manhattan, Goldman Sachs, J.P. Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley Dean Witter, and Salomon Smith Barney—met on the 10th floor conference room of the Federal Reserve Bank of New York (pictured) to rescue LTCM.</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Long-Term Capital Management did business with nearly everyone important on Wall Street. Indeed, much of LTCM's capital was composed of funds from the same financial professionals with whom it traded. As LTCM teetered, Wall Street feared that Long-Term's failure could cause a chain reaction in numerous markets, causing catastrophic losses throughout the financial system. After LTCM failed to raise more money on its own, it became clear it was running out of options. On September 23, 1998, Goldman Sachs, AIG, and Berkshire Hathaway offered then to buy out the fund's partners for $250 million, to inject $3.75 billion and to operate LTCM within Goldman's own trading division. The offer was stunningly low to LTCM's partners because at the start of the year their firm had been worth $4.7 billion. Warren Buffett gave Meriwether less than one hour to accept the deal; the time lapsed before a deal could be worked out.[23]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman"><b>Seeing no options left, the Federal Reserve Bank of New York organized a bailout of $3.625 billion by the major creditors to avoid a wider collapse in the financial markets.</b>[24] The principal negotiator for LTCM was general counsel James G. Rickards.[25] <span style="background-color: rgb(255, 255, 102);">The contribution</span>s from the various institutions were as follows:[26][27]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">$300 million: Bankers Trust, Barclays, Chase, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, Merrill Lynch, J.P.Morgan, Morgan Stanley, Salomon Smith Barney, UBS</font></div><div><font size="4" face="Times New Roman">$125 million: Société Générale</font></div><div><font size="4" face="Times New Roman">$100 million: Paribas, Credit Agricole[28]</font></div><div><font size="4" face="Times New Roman">Bear Stearns and Lehman Brothers[29] declined to participate.</font></div><div><font size="4" face="Times New Roman">In return, the participating banks got a 90% share in the fund and a promise that a supervisory board would be established. LTCM's partners received a 10% stake, still worth about $400 million, but this money was completely consumed by their debts. The partners once had $1.9 billion of their own money invested in LTCM, all of which was wiped out.[30]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman" style="background-color: rgb(255, 255, 102);">The fear was that there would be a chain reaction as the company liquidated its securities to cover its debt, leading to a drop in prices, which would force other companies to liquidate their own debt creating a vicious cycle.</font></div><div><font size="4" face="Times New Roman" style="background-color: rgb(255, 255, 102);">
</font></div><div><font size="4" face="Times New Roman" style="background-color: rgb(255, 255, 102);">The total losses were found to be $4.6 billion. The losses in the major investment categories were (ordered by magnitude):[19]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">$1.6 bn in swaps</font></div><div><font size="4" face="Times New Roman">$1.3 bn in equity volatility</font></div><div><font size="4" face="Times New Roman">$430 mn in Russia and other emerging markets</font></div><div><font size="4" face="Times New Roman">$371 mn in directional trades in developed countries</font></div><div><font size="4" face="Times New Roman">$286 mn in Dual-listed company pairs (such as VW, Shell)</font></div><div><font size="4" face="Times New Roman">$215 mn in yield curve arbitrage</font></div><div><font size="4" face="Times New Roman">$203 mn in S&P 500 stocks</font></div><div><font size="4" face="Times New Roman">$100 mn in junk bond arbitrage</font></div><div><font size="4" face="Times New Roman">no substantial losses in merger arbitrage</font></div><div><font size="4" face="Times New Roman">Long-Term Capital was audited by Price Waterhouse LLP. After the bailout by the other investors, the panic abated, and the positions formerly held by LTCM were eventually liquidated at a small profit to the rescuers.</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Some industry officials said that Federal Reserve Bank of New York involvement in the rescue, however benign, would encourage large financial institutions to assume more risk, in the belief that the Federal Reserve would intervene on their behalf in the event of trouble. Federal Reserve Bank of New York actions raised concerns among some market observers that it could create moral hazard.[31]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">LTCM's strategies were compared (a contrast with the market efficiency aphorism that there are no $100 bills lying on the street, as someone else has already picked them up) to "picking up nickels in front of a bulldozer"[32] — a likely small gain balanced against a small chance of a large loss, like the payouts from selling an out-of-the-money naked call option.</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Aftermath</font></div><div><font size="4" face="Times New Roman">After the bailout, Long-Term Capital Management continued operations. In the year following the bailout, it earned 10%. By early 2000, the fund had been liquidated, and the consortium of banks that financed the bailout had been paid back; but the collapse was devastating for many involved. Mullins, once considered a possible successor to Alan Greenspan, saw his future with the Reserve dashed. The theories of Merton and Scholes took a public beating. In its annual reports, Merrill Lynch observed that mathematical risk models "may provide a greater sense of security than warranted; therefore, reliance on these models should be limited."[33]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">After helping unwind LTCM, Meriwether launched JWM Partners. Haghani, Hilibrand, Leahy, and Rosenfeld signed up as principals of the new firm. By December 1999, they had raised $250 million for a fund that would continue many of LTCM's strategies—this time, using less leverage.[34] With the Credit Crisis, JWM Partners LLC was hit with 44% loss from September 2007 to February 2009 in its Relative Value Opportunity II fund. As such, JWM Hedge Fund was shut down in July 2009.[35]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">In 1998, the chairman of Union Bank of Switzerland resigned as a result of a $780 million loss due to the collapse of Long-Term Capital Management.[1]</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">See also</font></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">Black–Scholes model</font></div><div><font size="4" face="Times New Roman">Commodity Futures Modernization Act of 2000</font></div><div><font size="4" face="Times New Roman">Game theory</font></div><div><font size="4" face="Times New Roman">Greenspan put</font></div><div><font size="4" face="Times New Roman">Kurtosis risk</font></div><div><font size="4" face="Times New Roman">Martingale (betting system)</font></div><div><font size="4" face="Times New Roman">Martingale (probability theory)</font></div><div><font size="4" face="Times New Roman">Probability theory</font></div><div><font size="4" face="Times New Roman">St. Petersburg paradox</font></div><div><font size="4" face="Times New Roman">Value at risk</font></div><div><font size="4" face="Times New Roman">When Genius Failed: The Rise and Fall of Long-Term Capital Management</font></div><div><font size="4" face="Times New Roman">Notes</font></div></div><div><font size="4" face="Times New Roman">
</font></div><div><font size="4" face="Times New Roman">=</font></div><div><font size="4" face="Times New Roman">wiki asian crisis</font></div><div><font size="4" face="Times New Roman">
</font></div><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); line-height: 1.3; background: none rgb(255, 255, 255);"><font size="4" face="Times New Roman"><span class="mw-headline" id="Credit_bubbles_and_fixed_currency_exchange_rates">Credit bubbles and fixed currency exchange rates</span><span class="mw-editsection" style="-webkit-user-select: none; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: -webkit-isolate;"><span class="mw-editsection-bracket" style="margin-right: 0px; color: rgb(85, 85, 85); margin-left: 0px;">[</span><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><span class="mw-editsection-bracket" style="margin-left: 0px; color: rgb(85, 85, 85); margin-right: 0px;">]</span></span></font></h2><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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>".<sup id="cite_ref-7" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-7" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[7]</a></sup> 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.<sup id="cite_ref-8" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-8" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[8]</a></sup></font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.<sup id="cite_ref-9" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-9" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[9]</a></sup> 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.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.<sup id="cite_ref-10" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-10" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[10]</a></sup> 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.<sup id="cite_ref-11" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-11" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[11]</a></sup></font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.<sup id="cite_ref-12" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-12" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[12]</a></sup> 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.</font></p><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); line-height: 1.3; background: none rgb(255, 255, 255);"><font size="4" face="Times New Roman"><span class="mw-headline" id="Panic_amongst_lenders_and_withdrawal_of_credit">Panic amongst lenders and withdrawal of credit</span><span class="mw-editsection" style="-webkit-user-select: none; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: -webkit-isolate;"><span class="mw-editsection-bracket" style="margin-right: 0px; color: rgb(85, 85, 85); margin-left: 0px;">[</span><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><span class="mw-editsection-bracket" style="margin-left: 0px; color: rgb(85, 85, 85); margin-right: 0px;">]</span></span></font></h2><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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>.<sup id="cite_ref-13" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-13" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[13]</a></sup></font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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<sup id="cite_ref-14" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-14" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[14]</a></sup> (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).<sup id="cite_ref-15" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-15" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[15]</a></sup></font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.<sup id="cite_ref-AFC-NA-15_16-0" class="reference" style="line-height: 1; unicode-bidi: embed;"><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); white-space: nowrap; background: none;">[16]</a></sup><sup id="cite_ref-AFC-NA-11_17-0" class="reference" style="line-height: 1; unicode-bidi: embed;"><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); white-space: nowrap; background: none;">[17]</a></sup><sup id="cite_ref-AFC-NA-12_18-0" class="reference" style="line-height: 1; unicode-bidi: embed;"><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); white-space: nowrap; background: none;">[18]</a></sup>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.<sup id="cite_ref-AFC-NA-16_19-0" class="reference" style="line-height: 1; unicode-bidi: embed;"><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); white-space: nowrap; background: none;">[19]</a></sup><sup id="cite_ref-AFC-NA-13_20-0" class="reference" style="line-height: 1; unicode-bidi: embed;"><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); white-space: nowrap; background: none;">[20]</a></sup><sup id="cite_ref-AFC-NA-14_21-0" class="reference" style="line-height: 1; unicode-bidi: embed;"><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); white-space: nowrap; background: none;">[21]</a></sup></font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.<sup id="cite_ref-22" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-22" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[22]</a></sup> 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".</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.<sup class="noprint Inline-Template Template-Fact" style="line-height: 1; white-space: nowrap;">[<i><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;"><span title="This claim needs references to reliable sources. (August 2010)">citation needed</span></a></i>]</sup></font></p><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); line-height: 1.3; background: none rgb(255, 255, 255);"><font size="4" face="Times New Roman"><span class="mw-headline" id="IMF_role">IMF role</span><span class="mw-editsection" style="-webkit-user-select: none; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: -webkit-isolate;"><span class="mw-editsection-bracket" style="margin-right: 0px; color: rgb(85, 85, 85); margin-left: 0px;">[</span><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><span class="mw-editsection-bracket" style="margin-left: 0px; color: rgb(85, 85, 85); margin-right: 0px;">]</span></span></font></h2><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">Such was the scope and the severity of the collapses involved that outside intervention, considered by many as a new kind of colonialism,<sup id="cite_ref-23" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-23" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[23]</a></sup> 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.<sup class="noprint Inline-Template Template-Fact" style="line-height: 1; white-space: nowrap;">[<i><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;"><span title="This claim needs references to reliable sources. (November 2013)">citation needed</span></a></i>]</sup></font></p><h3 style="margin: 0.3em 0px 0px; overflow: hidden; padding-top: 0.5em; padding-bottom: 0px; border-bottom-style: none; line-height: 1.6; background: none rgb(255, 255, 255);"><font size="4" face="Times New Roman"><span class="mw-headline" id="Economic_reforms">Economic reforms</span><span class="mw-editsection" style="-webkit-user-select: none; font-weight: normal; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: -webkit-isolate;"><span class="mw-editsection-bracket" style="margin-right: 0px; color: rgb(85, 85, 85); margin-left: 0px;">[</span><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><span class="mw-editsection-bracket" style="margin-left: 0px; color: rgb(85, 85, 85); margin-right: 0px;">]</span></span></font></h3><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">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.<sup id="cite_ref-24" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-24" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[24]</a></sup></font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">There were to be adequate government controls set up to supervise all financial activities, ones that were to be independent, in theory, of private interest. Insolvent institutions had to be closed, and insolvency itself had to be clearly defined. In addition, financial systems were to become "transparent", that is, provide the kind of reliable financial information used in the West to make sound financial decisions.<sup id="cite_ref-25" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-25" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[25]</a></sup></font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">As countries fell into crisis, many local businesses and governments that had taken out loans in US dollars, which suddenly became much more expensive relative to the local currency which formed their earned income, found themselves unable to pay their creditors. The dynamics of the situation were similar to that of the <a href="https://en.wikipedia.org/wiki/Latin_American_debt_crisis" title="Latin American debt crisis" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Latin American debt crisis</a>. The effects of the SAPs were mixed and their impact controversial. Critics, however, noted the contractionary nature of these policies, arguing that in a <a href="https://en.wikipedia.org/wiki/Recession" title="Recession" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">recession</a>, the traditional <a href="https://en.wikipedia.org/wiki/Keynesian" title="Keynesian" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Keynesian</a> response was to increase government spending, prop up major companies, and lower interest rates.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">The reasoning was that by stimulating the economy and staving off recession, governments could restore confidence while preventing <a href="https://en.wikipedia.org/wiki/Pure_economic_loss" title="Pure economic loss" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">economic loss</a>. They pointed out that the U.S. government had pursued expansionary policies, such as lowering interest rates, increasing government spending, and cutting taxes, when the United States itself entered a recession in 2001, and arguably the same in the fiscal and monetary policies during the 2008–2009 Global Financial Crisis.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">Many commentators in retrospect criticized the IMF for encouraging the developing economies of Asia down the path of "fast-track capitalism", meaning liberalization of the financial sector (elimination of restrictions on capital flows), maintenance of high domestic interest rates to attract <a href="https://en.wikipedia.org/wiki/Portfolio_investment" title="Portfolio investment" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">portfolio investment</a> and bank capital, and pegging of the national currency to the dollar to reassure foreign investors against currency risk.<sup id="cite_ref-waldenbelloimf_26-0" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-waldenbelloimf-26" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[26]</a></sup></font></p><h3 style="margin: 0.3em 0px 0px; overflow: hidden; padding-top: 0.5em; padding-bottom: 0px; border-bottom-style: none; line-height: 1.6; background: none rgb(255, 255, 255);"><font size="4" face="Times New Roman"><span class="mw-headline" id="IMF_and_high_interest_rates">IMF and high interest rates</span><span class="mw-editsection" style="-webkit-user-select: none; font-weight: normal; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: -webkit-isolate;"><span class="mw-editsection-bracket" style="margin-right: 0px; color: rgb(85, 85, 85); margin-left: 0px;">[</span><a href="https://en.wikipedia.org/w/index.php?title=1997_Asian_financial_crisis&action=edit&section=5" title="Edit section: IMF and high interest rates" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">edit</a><span class="mw-editsection-bracket" style="margin-left: 0px; color: rgb(85, 85, 85); margin-right: 0px;">]</span></span></font></h3><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">The conventional high-interest-rate economic wisdom is normally employed by monetary authorities to attain the chain objectives of tightened <a href="https://en.wikipedia.org/wiki/Money_supply" title="Money supply" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">money supply</a>, discouraged <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>, stabilized exchange rate, curbed currency depreciation, and ultimately contained <a href="https://en.wikipedia.org/wiki/Inflation" title="Inflation" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">inflation</a>.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">In the Asian meltdown, highest IMF officials rationalized their prescribed high interest rates as follows:</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">From then IMF First Deputy managing director, <a href="https://en.wikipedia.org/wiki/Stanley_Fischer" title="Stanley Fischer" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Stanley Fischer</a> (Stanley Fischer, "The IMF and the Asian Crisis," Forum Funds Lecture at UCLA, Los Angeles on 20 March 1998):</font></p><dl style="margin-top: 0.2em; margin-bottom: 0.5em; color: rgb(37, 37, 37); line-height: 22.3999996185303px; background-color: rgb(255, 255, 255);"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;"><font size="4" face="Times New Roman">”When their governments "approached the IMF, the reserves of Thailand and South Korea were perilously low, and the Indonesian Rupiah was excessively depreciated. Thus, the first order of business was... to restore confidence in the currency. To achieve this, countries have to make it more attractive to hold domestic currency, which in turn, requires increasing interest rates temporarily, even if higher interest costs complicate the situation of weak banks and corporations...</font></dd></dl><dl style="margin-top: 0.2em; margin-bottom: 0.5em; color: rgb(37, 37, 37); line-height: 22.3999996185303px; background-color: rgb(255, 255, 255);"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;"><font size="4" face="Times New Roman">"Why not operate with lower interest rates and a greater devaluation? This is a relevant tradeoff, but there can be no question that the degree of devaluation in the Asian countries is excessive, both from the viewpoint of the individual countries, and from the viewpoint of the international system. Looking first to the individual country, companies with substantial foreign currency debts, as so many companies in these countries have, stood to suffer far more from… currency (depreciation) than from a temporary rise in domestic interest rates…. Thus, on macroeconomics… monetary policy has to be kept tight to restore confidence in the currency...."</font></dd></dl><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">From the then IMF managing director <a href="https://en.wikipedia.org/wiki/Michel_Camdessus" title="Michel Camdessus" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Michel Camdessus</a> ("Doctor Knows Best?" <i><a href="https://en.wikipedia.org/wiki/Asiaweek" title="Asiaweek" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Asiaweek</a></i>, 17 July 1998, p. 46):</font></p><dl style="margin-top: 0.2em; margin-bottom: 0.5em; color: rgb(37, 37, 37); line-height: 22.3999996185303px; background-color: rgb(255, 255, 255);"><dd style="margin-left: 1.6em; margin-bottom: 0.1em; margin-right: 0px;"><font size="4" face="Times New Roman">"To reverse (currency depreciation), countries have to make it more attractive to hold domestic currency, and that means temporarily raising interest rates, even if this (hurts) weak banks and corporations."</font></dd></dl><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); line-height: 1.3; background: none rgb(255, 255, 255);"><font size="4" face="Times New Roman"><span class="mw-headline" id="Thailand">Thailand</span><span class="mw-editsection" style="-webkit-user-select: none; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: -webkit-isolate;"><span class="mw-editsection-bracket" style="margin-right: 0px; color: rgb(85, 85, 85); margin-left: 0px;">[</span><a href="https://en.wikipedia.org/w/index.php?title=1997_Asian_financial_crisis&action=edit&section=6" title="Edit section: Thailand" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">edit</a><span class="mw-editsection-bracket" style="margin-left: 0px; color: rgb(85, 85, 85); margin-right: 0px;">]</span></span></font></h2><div class="hatnote" style="font-style: italic; padding-left: 1.6em; margin-bottom: 0.5em; color: rgb(37, 37, 37); line-height: 22.3999996185303px; background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">Further information: <a href="https://en.wikipedia.org/wiki/Economy_of_Thailand" title="Economy of Thailand" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Economy of Thailand</a></font></div><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">From 1985 to 1996, <a href="https://en.wikipedia.org/wiki/Thailand" title="Thailand" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Thailand</a>'s economy grew at an average of over 9% per year, the highest economic growth rate of any country at the time. Inflation was kept reasonably low within a range of 3.4–5.7%.<sup id="cite_ref-27" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-27" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[27]</a></sup> The baht was pegged at 25 to the U.S. dollar.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">On 14 May and 15 May 1997, 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> was hit by massive speculative attacks. On 30 June 1997, Prime Minister <a href="https://en.wikipedia.org/wiki/Chavalit_Yongchaiyudh" title="Chavalit Yongchaiyudh" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Chavalit Yongchaiyudh</a> said that he would not devalue the baht. This was the spark that ignited the Asian financial crisis as the <a href="https://en.wikipedia.org/wiki/Thai_government" title="Thai government" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Thai government</a> failed to defend the baht, which was pegged to the basket of currencies in which the U.S. dollar was the main component,<sup id="cite_ref-28" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-28" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[28]</a></sup> against international speculators.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in the countryside and 600,000 foreign workers being sent back to their home countries.<sup id="cite_ref-29" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-29" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[29]</a></sup> The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 56 units to the U.S. dollar in January 1998. The Thai stock market dropped 75%. Finance One, the largest Thai finance company until then, collapsed.<sup id="cite_ref-30" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-30" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[30]</a></sup></font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">Without foreign reserves to support the U.S.-Baht currency peg, the Thai government was eventually forced to float the Baht, on 2 July 1997, allowing the value of the Baht to be set by the currency market. On 11 August 1997, the IMF unveiled a rescue package for Thailand with more than $17 billion, subject to conditions such as passing laws relating to bankruptcy (reorganizing and restructuring) procedures and establishing strong regulation frameworks for banks and other financial institutions. The IMF approved on 20 August 1997, another bailout package of $2.9 billion.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">By 2001, Thailand's economy had recovered. The increasing tax revenues allowed the country to balance its budget and repay its debts to the IMF in 2003, four years ahead of schedule. The Thai baht continued to appreciate to 29 Baht to the U.S. dollar in October 2010.</font></p><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); line-height: 1.3; background: none rgb(255, 255, 255);"><font size="4" face="Times New Roman"><span class="mw-headline" id="Indonesia">Indonesia</span><span class="mw-editsection" style="-webkit-user-select: none; margin-left: 1em; vertical-align: baseline; line-height: 1em; display: inline-block; white-space: nowrap; unicode-bidi: -webkit-isolate;"><span class="mw-editsection-bracket" style="margin-right: 0px; color: rgb(85, 85, 85); margin-left: 0px;">[</span><a href="https://en.wikipedia.org/w/index.php?title=1997_Asian_financial_crisis&action=edit&section=7" title="Edit section: Indonesia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">edit</a><span class="mw-editsection-bracket" style="margin-left: 0px; color: rgb(85, 85, 85); margin-right: 0px;">]</span></span></font></h2><div class="hatnote" style="font-style: italic; padding-left: 1.6em; margin-bottom: 0.5em; color: rgb(37, 37, 37); line-height: 22.3999996185303px; background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">See also: <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;">Fall of Suharto</a> and <a href="https://en.wikipedia.org/wiki/Economy_of_Indonesia" title="Economy of Indonesia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Economy of Indonesia</a></font></div><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman"><span style="line-height: 22.3999996185303px;">
In July 1997, when Thailand floated the baht, Indonesia's monetary authorities widened the rupiah</span><span style="line-height: 22.3999996185303px;"> </span><a href="https://en.wikipedia.org/wiki/Currency_trading_band" title="Currency trading band" class="mw-redirect" style="line-height: 22.3999996185303px; text-decoration: none; color: rgb(11, 0, 128); background: none;">currency trading band</a><span style="line-height: 22.3999996185303px;"> </span><span style="line-height: 22.3999996185303px;">from 8% to 12%. The rupiah suddenly came under severe attack in August. On 14 August 1997, the managed floating exchange regime was replaced by a free-floating exchange rate arrangement. The rupiah dropped further. The IMF came forward with a rescue package of $23 billion, but the rupiah was sinking further amid fears over corporate debts, massive selling of rupiah, and strong demand for dollars. The rupiah and the</span><span style="line-height: 22.3999996185303px;"> </span><a href="https://en.wikipedia.org/wiki/Jakarta_Stock_Exchange" title="Jakarta Stock Exchange" style="line-height: 22.3999996185303px; text-decoration: none; color: rgb(11, 0, 128); background: none;">Jakarta Stock Exchange</a><span style="line-height: 22.3999996185303px;"> </span><span style="line-height: 22.3999996185303px;">touched a historic low in September.</span><span style="line-height: 22.3999996185303px;"> </span><a href="https://en.wikipedia.org/wiki/Moody%27s" title="Moody's" class="mw-redirect" style="line-height: 22.3999996185303px; text-decoration: none; color: rgb(11, 0, 128); background: none;">Moody's</a><span style="line-height: 22.3999996185303px;"> </span><span style="line-height: 22.3999996185303px;">eventually downgraded Indonesia's long-term debt to "</span><a href="https://en.wikipedia.org/wiki/Junk_bond" title="Junk bond" class="mw-redirect" style="line-height: 22.3999996185303px; text-decoration: none; color: rgb(11, 0, 128); background: none;">junk bond</a><span style="line-height: 22.3999996185303px;">".</span><sup id="cite_ref-31" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-31" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[31]</a></sup>In June 1997, Indonesia seemed far from crisis. Unlike Thailand, Indonesia had low inflation, a <a href="https://en.wikipedia.org/wiki/Trade_surplus" title="Trade surplus" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">trade surplus</a> of more than $900 million, huge foreign exchange reserves of more than $20 billion, and a good banking sector. But a large number of Indonesian corporations had been borrowing in U.S. dollars. During the preceding years, as 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> had strengthened respective to the dollar, this practice had worked well for these corporations; their effective levels of debt and financing costs had decreased as the local currency's value rose.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">Although the rupiah crisis began in July and August 1997, it intensified in November when the effects of that summer devaluation showed up on corporate balance sheets. Companies that had borrowed in dollars had to face the higher costs imposed upon them by the rupiah's decline, and many reacted by buying dollars through selling rupiah, undermining the value of the latter further. In February 1998, President <a href="https://en.wikipedia.org/wiki/Suharto" title="Suharto" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Suharto</a> sacked <a href="https://en.wikipedia.org/wiki/Bank_Indonesia" title="Bank Indonesia" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">Bank Indonesia</a> Governor <a href="https://en.wikipedia.org/wiki/J.Soedradjad_Djiwandono" title="J. Soedradjad Djiwandono" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">J. Soedradjad Djiwandono</a>, but this proved insufficient. Suharto resigned under public pressure in May 1998 and Vice President <a href="https://en.wikipedia.org/wiki/Bacharuddin_Jusuf_Habibie" title="Bacharuddin Jusuf Habibie" class="mw-redirect" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">B. J. Habibie</a> was elevated in his place. Before the crisis, the exchange rate between the rupiah and the dollar was roughly 2,600 rupiah to 1 U.S. dollar.<sup id="cite_ref-32" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-32" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[32]</a></sup></font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">The rate plunged to over 11,000 rupiah to 1 U.S. dollar on 9 January 1998, with spot rates over 14,000 during 23–26 January and trading again over 14,000 for about six weeks during June–July 1998. On 31 December 1998, the rate was almost exactly 8,000 to 1 U.S. dollar.<sup id="cite_ref-33" class="reference" style="line-height: 1; unicode-bidi: embed;"><a href="https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#cite_note-33" style="text-decoration: none; color: rgb(11, 0, 128); white-space: nowrap; background: none;">[33]</a></sup> Indonesia lost 13.5% of its GDP that year.</font></p><p style="margin: 0.5em 0px; line-height: 22.3999996185303px; color: rgb(37, 37, 37); background-color: rgb(255, 255, 255);"><font size="4" face="Times New Roman">
The crisis also brought independence to <a href="https://en.wikipedia.org/wiki/East_Timor" title="East Timor" style="text-decoration: none; color: rgb(11, 0, 128); background: none;">East Timor</a>.</font></p></div><div><font size="4" face="Times New Roman"></font></div>