Asian Financial Crisis

by Nicola Bullard
“The IMF bill is a hot-potato, and as we get closer to the November congressional election everyone wants it out of the way,’’ says Carol Welch from Friends of the Earth -US. But, so far, the IMF funding bill shows no sign of going away, having been sidetracked yet again in its uncertain progress through the US Congress. Read the rest of this entry »

Speculative Episodes. The Thai baht depreciation of 18.6 per cent on July 2, 1997 was by no means an insignificant change. One should, therefor, expect some ripple effects in the regional economies with trade, investment and other links with Thailand. If that were to be so, the “crisis” would have been a short lived one and would have been completed by the time the Thai baht stabilised. The actual story is different and funds appear to have moved erratically and helter-skelter as shown in the brief account that follows. Read the rest of this entry »

Some general explanations on why an exchange rate may be subject to attacks and pressures are available in the literature. A few are reviewed here.

Krugman (1979) explains that speculative pressures on a currency are the result of inconsistencies between macroeconomic policies and government’s exchange rate target. In the face of rapid growth in domestic credit and large budget deficits, if a government sticks to a currency peg and defends the exchange rate by drawing on the foreign currency reserves, it could lead to an eventual collapse of the peg. Observing the depletion of reserves, speculators will attack the currency and the sudden collapse of the peg will be certain. This explanation fits the Thai case to a large extent. The Thai central bank did draw on her foreign reserves to keep the peg of the baht to the dollar before the peg collapsed. Read the rest of this entry »