Economic situation to be the worst since the 1997 Asian Financial Crisis

The recently released World Bank report predicted that the economic situation in the near future could be the worst since the 1997 Asian Financial Crisis.

1997 Financial Crisis

The 1997 Asian Financial Crisis is also known as the Asian Contagion. It was a sequence of currency devaluations in the region leading to decline in the stock market and revenues from imports, increase in private debts and even government upheavals.

Causes of the Crisis

Some of the causes of the crisis are:

• Export-led growth in many East Asian economies.
• Pegging of currency to the US Dollar.
• 1995 reversal of Plaza Accord led to appreciation of US Dollar and consequently the East Asian currencies. This made the exports from Japan and Germany more competitive.
• Decline in corporate profits due to decline in exports.
• Started with the devaluation of Thai baht of Thailand. As a result many of the East Asian currencies fell- some by as much as 38%.

IMF Intervention

The International Monetary Fund (IMF) intervened to curb the crisis. The affected countries, called ‘tiger economies’ were given loans for stabilization. In return the countries had to agree to impose stricter norms in their economies like higher interest rates, taxes and lower public spending.