Pound / USD

[CrushinFelt]

Article

A fairly interesting summary of the Asian Financial Crisis and global currency issues. OP said this was well out of the realm of his expertise, this may shed at least some light into what drives currency moves.

[scott1]

Thanks for the article.

[kimchi]

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Article

A fairly interesting summary of the Asian Financial Crisis and global currency issues. OP said this was well out of the realm of his expertise, this may shed at least some light into what drives currency moves.

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I've been in Asia for several years and it's interesting to hear that the financial crisis of the late 90's is always referred to a "The IMF crisis" both by individuals and the national media.

It was the IMF that bailed out many of the Asian countries in exchange for banking reforms, yet in typical Asian 'face-saving' style, the period is treated as if it was the IMF, and not government policy (or lack thereof) that was to blame.

[DcifrThs]

don't trust CNBC to explain anything to you:

they hit on some major themes but explained it poorly:

much better explanation is here LINKY

enjoy!

Barron

PS- i would like to add these thoughts as a brief summary:

Causes of the crisis:

1) increased domestic demand for consumption as a result of high growth rate. they were growing but not investing in their own economies. instead, they imported goods and consumed and borrowed money to finance that consumption. the debt was denominated in dollars like inthe latin american crisis of the early 80s. (this was not clearly outlined in either article i don't think)

2) increased demand for east asian goods & investments lead to the large number of banks/investors et. al to pour money into those countries thinking that exchange rate risk was effectively 0 and that the growth would continue.

3) as with all pegs that require reserves to push the currency up (save malaysia), there is a choice between domestic policy & holding the peg. when investors started taking money out (since it was invested in stocks and loans rather than infrastructure) there became a need to raise interest rates to pull money back in order to maintain the peg. the economies needed lower rates than what resulted from the peg and eventually, flows overwhelmed the interest rate attraction and the pegs broke in a big way and the ringgit (malaysia) fell significantly.

[CrushinFelt]

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It was the IMF that bailed out many of the Asian countries in exchange for banking reforms, yet in typical Asian 'face-saving' style, the period is treated as if it was the IMF, and not government policy (or lack thereof) that was to blame.

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From what I read in the wiki entry that dcifr posted, if the reforms that the IMF wanted did in fact include contractionary ideas, then although the IMF is not to blame for the crisis, it is very possible, and likely that they amplified it.

[DcifrThs]

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It was the IMF that bailed out many of the Asian countries in exchange for banking reforms, yet in typical Asian 'face-saving' style, the period is treated as if it was the IMF, and not government policy (or lack thereof) that was to blame.

[/ QUOTE ]

From what I read in the wiki entry that dcifr posted, if the reforms that the IMF wanted did in fact include contractionary ideas, then although the IMF is not to blame for the crisis, it is very possible, and likely that they amplified it.

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the high interest rates was the main problem as how can you grow with less liquidity?

either way, those countries dug their own grave with the consumption boom and $denomiated debt to finance it (same thing happened in LA in early 80s)

Barron

[CrushinFelt]

One cause-and-effect relationship that I hadn't really heard before:

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After the Asian crisis, international investors were reluctant to lend to developing countries, leading to economic slowdowns in developing countries in many parts of the world. The powerful negative shock also sharply reduced the price of oil, which reached a low of $8/barrel towards the end of 1998, causing a financial pinch in OPEC nations and other oil exporters. Such sharply reduced oil revenue in turn contributed to the Russian financial crisis in 1998. Which in turn caused Long-Term Capital Management in the United States to collapse, after losing $4.6 billion in 4 months.

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[Moonshine]

this forum is awesome