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Entry 235 of 240Economic

The Asian Financial Crisis

1997 CE/Southeast Asia/East & Southeast Asia
Today Thailand, Indonesia, South KoreaSpan Asian Financial Crisis · 1997–1998

The fast-growing economies of Southeast Asia had borrowed heavily in dollars while pegging their currencies to the dollar, which worked until speculators bet the pegs would break. Thailand's did in July 1997, and the panic ran through Malaysia, Indonesia, South Korea, and beyond within months: currencies halved, dollar debts doubled in local terms, and companies that were solvent on Monday were bankrupt on Friday. IMF rescue terms demanding austerity were widely judged afterward to have deepened the slump. Indonesia's government fell after thirty-one years.

◆ Worth knowingThe crisis is why Asian central banks now hoard foreign reserves on a scale that puzzles outsiders. Having been rescued once on terms they resented, several governments concluded the cheapest insurance was never needing rescue again.
◆ The mechanismMania & panic

A speculative belief detaches asset prices from fundamentals; the belief breaks and prices collapse.

Also: Debt / credit cycle · Monetary debasement · Revolution from hardship

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