The Malaysian ringgit was heavily traded by speculators in July 1997, just days after the Thai baht was devalued. The overnight rate soared from less than 8% to more than 40%. Ratings downgrades followed, as did a general sell-off in the stock and currency markets. By the end of 1997, ratings had plummeted from investment grade to junk, the KLSE had lost more than half of its value, going from over 1,200 to under 600, and the ringgit had lost half of its value, falling from over 2.50 to under 4.57 per dollar on January 23, 1998. Mahathir Mohamad, the country’s then-prime minister, enforced severe capital controls and implemented a 3.80 peg to the US dollar.
Malaysian actions included fixing the local currency to the US dollar, prohibiting overseas trade in ringgit currency and other ringgit assets, limiting the amount of currency and investments that residents can take abroad, and imposing a minimum one-year “stay period” for foreign portfolio funds, which has since been converted to an exit tax. The move to invalidate ringgit stored outside has also dried off sources of ringgit held abroad that speculators use to influence the ringgit, such as by “selling short.” Those who did were forced to repurchase the restricted ringgit at increased prices, rendering it unappealing to them. It also halted trading of CLOB (Central Limit Order Book) counters, freezing around $4.47 billion in shares and impacting 172,000 investors, the majority of whom were Singaporeans, indefinitely, causing a diplomatic spat between the two countries.
The real economy’s output fell in 1998, driving the country into its first recession in many years. The construction industry shrank by 23.5 percent, manufacturing shrank by 9%, and agricultural shrank by 5.9 percent. In 1998, the country’s gross domestic product fell by 6.2 percent. The ringgit went below 4.7 throughout the year, while the KLSE fell below 270 points. Various defensive steps to combat the situation were declared in September of that year.
The main action was to convert the ringgit from a free-floating to a fixed-rate currency. The ringgit was pegged at 3.8 to the dollar by Bank Negara. Capital controls were established, and the IMF offered assistance was turned down. Several task force agencies were established. Corporate debt restructuring was handled by the Corporate Debt Restructuring Committee. To aid orderly asset realization, Danaharta reduced and purchased problematic loans from banks. Banks were re-capitalized by Danamodal.
The rate of growth then slowed to a more manageable level. The enormous current account deficit was turned into a sizable surplus. Banks were better capitalized, and nonperforming loans were repaid in a timely manner. Strong banks bought out smaller banks. A huge number of PLCs were delisted after they were unable to control their financial concerns. Malaysia had a $14.06 billion current account surplus in 2005, compared to the 1997 current account deficit. Asset values, on the other hand, have not recovered to their pre-crisis levels. Foreign investor confidence remained low, owing in part to the lack of openness displayed in the handling of the CLOB counters.
The last of the crisis measures was withdrawn from the fixed exchange system in 2005. However, unlike in the days before the crisis, it did not appear to be a free float, but rather a regulated float, similar to the Singapore dollar.
In 1999, was there a recession?
Then, in the early 2000s, the dot-com bubble burst, causing a recession.
The overvaluation and cyclical excesses of earlier times are no longer present in today’s market. In April, equities returned to all-time highs, recouping all of the ground lost following a 19.8% drop in late 2018. However, the size of this non-recessionary correction, as well as its quick recovery, harkens back to the market gyrations of the summer of 1998.
The Asian Financial Crisis brought its stresses to the United States, and the S&P 500 Index plummeted 19.3 percent from July 17 to August 31. The turbulence led to the near-bankruptcy of hedge fund manager Long Term Capital Management (LTCM) in September, which was only averted thanks to a $3.6 billion backup from 14 banks and brokerage firms facilitated by the US Federal Reserve (Fed).
What triggered the 1997 financial crisis?
With the reversal of the Plaza Accord in 1995, the US, German, and Japanese governments pledged to work together to allow the US dollar to rise against the yen and the Deutsche Mark. This also meant that East Asian currencies linked to the US dollar appreciated, putting enormous financial strains on these economies as Japanese and German exports became increasingly competitive with other East Asian exporters. Exports were down, and business earnings were down. East Asian governments and banking institutions found it increasingly difficult to borrow in US dollars in order to assist indigenous companies while maintaining currency pegs. These pressures to a head in 1997, when countries abandoned their pegs and depreciated their currencies one after the other.
What was the 1990s recession like?
In 1990, the United States suffered a recession that lasted for eight months, ending in March 1991. Despite the fact that the recession was moderate in comparison to other postwar recessions, it was marked by a sluggish employment recovery, sometimes known as a jobless rebound. Despite a return to positive economic growth the previous year, unemployment continued to rise into June 1992.
Bill Clinton’s victory in the 1992 presidential election was aided by a late rebound from the 19901991 recession, during which Clinton was successful in claiming that weak economic development was attributable to incumbent president George H. W. Bush’s policies.
What triggered the 1989 recession?
The early 1990s recession was a period of economic decline that affected much of Western Europe in the early 1990s. The effects of the recession played a role in Bill Clinton’s win over incumbent president George H. W. Bush in the 1992 US presidential election. The resignation of Canadian Prime Minister Brian Mulroney, a 15% decline in active enterprises and nearly 20% unemployment in Finland, public unrest in the United Kingdom, and the expansion of bargain stores in the United States and elsewhere were all part of the recession.
The following are some of the primary factors thought to have contributed to the recession: restrictive monetary policy enacted by central banks, primarily in response to inflation concerns, the loss of consumer and business confidence as a result of the 1990 oil price shock, the end of the Cold War and the resulting reduction in defense spending, the savings and loan crisis, and a slump in office construction due to overbuilding in the 1980s. By 1993, the US economy had recovered to 1980s levels of growth, and worldwide GDP had increased by 1994.
How long did the recession of 2001 last?
After the comparatively mild 1990 recession ended in early 1991, the country’s jobless rate reached a late high of 7.8% in mid-1992. Large layoffs in defense-related businesses initially hindered job development. Payrolls, on the other hand, surged in 1992 and grew rapidly through 2000.
During the dot-com bubble in the late 1990s, there were predictions that the bubble would burst. Following the October 27, 1997 mini-crash, which occurred in the aftermath of the 1997 Asian financial crisis, predictions of a future burst intensified. During the first several months of 1998, this created an unstable economic climate. However, things improved, and between June 1999 and May 2000, the Federal Reserve hiked interest rates six times in an attempt to calm the economy and create a smooth landing. The NASDAQ fall in March 2000 was the catalyst for the stock market bubble to explode. GNP growth slowed significantly in the third quarter of 2000, reaching its lowest level since a contraction in the first quarter of 1992.
According to the National Bureau of Economic Research (NBER), a private, nonprofit, nonpartisan institution tasked with assessing economic recessions, the US economy was in recession from March to November 2001, a period of eight months during the start of President George W. Bush’s presidency. The Business Cycle Dating Committee of the National Bureau of Economic Research estimated that the US economy peaked in March 2001. A peak signals the conclusion of an expansion and the start of a downturn. The conclusion that the growth that began in March 1991 ended in March 2001 and a recession began is thus a conclusion that the expansion that began in March 1991 ended in March 2001. The expansion lasted exactly ten years, making it the longest in NBER history.
However, economic conditions did not meet the conventional shorthand definition of recession, which is “a decrease in a country’s real gross domestic product in two or more consecutive quarters,” causing some confusion regarding how to determine when a recession began and ended.
The NBER’s Economic Cycle Dating Committee (BCDC) determines peaks and troughs in business activity using monthly, rather than quarterly, indices, as seen by the fact that starting and ending dates are given by month and year, not quarters. However, a dispute over the exact dates of the recession led Republicans to label it the “Clinton Recession” if it could be linked to President Bill Clinton’s final term. As more and more definitive evidence became available, BCDC members indicated that they would be open to reviewing the dates of the recession. Martin Feldstein, President of the National Bureau of Economic Research, stated in early 2004:
The new data clearly shows that our March timeframe for the start of the recession was far too late. Before making a final decision, we need to wait for more monthly statistics. We won’t be able to make a decision until we get further information.
From 2000 to 2001, the Federal Reserve raised interest rates in order to preserve the economy from an inflated stock market. A recession would have started in March 2000, when the NASDAQ plummeted following the fall of the dot-com boom, if the stock market were used as an unofficial benchmark. The Dow Jones Industrial Average escaped the NASDAQ’s meltdown largely untouched until the September 11, 2001 attacks, when it suffered its greatest one-day point loss and worst one-week loss in history. After a brief recovery, the market crashed again in the final two quarters of 2002. The market ultimately recovered in the final three quarters of 2003, agreeing with unemployment figures that a recession defined in this approach would have lasted from 2001 to 2003.
According to the Labor Department, 1.735 million jobs were lost in 2001, with another 508,000 positions lost in 2002. A total of 105,000 jobs were added in 2003. Unemployment increased from 4.2 percent in February 2001 to 5.5 percent in November 2001, but did not reach a peak until June 2003, when it reached 6.3 percent, before falling to 5% by mid-2005.
In 1997, was there a recession?
Beginning in July 1997, the Asian financial crisis gripped most of East Asia and Southeast Asia, raising worries of a worldwide economic disaster owing to financial contagion.
Is the Great Depression considered an epoch?
The Great Depression, which lasted from 1929 to 1939, was the worst economic downturn in the history of the industrialized world. It all started after the October 1929 stock market crash, which plunged Wall Street into a frenzy and wiped out millions of investors.
What triggered Malaysia’s financial crisis in 1997 and 1998?
Malaysia has seen three big economic shocks since independence. Given that the country was at various phases of growth during the last four decades, the reasons of each crises were highly varied in character.
The 1985/86 economic crisis was sparked by rising interest rates in the United States, often known as the Great Depression “Volcker Shock,” as it’s called. Paul Volcker, the newly appointed head of the US Federal Reserve, instituted record-high interest rates in 1980 to contain growing prices, resulting in a global commodity trade collapse.
Malaysia, as an exporter, suffered from lower primary commodity prices and lower demand for manufactured goods. As tin and palm oil prices collapsed, Malaysia’s entire export price index decreased by 30%.
During the 1980s, the nation’s heavy industry program was a major source of contention. Heavy Industries Corporation of Malaysia Bhd was founded as a public-sector organisation to handle heavy industry projects.
Massive government spending was required at the time, which was partially funded by petroleum revenue. However, this was insufficient, and the government began borrowing against future oil profits. Sadly, commodities prices, as well as crude oil prices, plummeted from 1985 to 1986.
The government was forced to go on an austerity drive as a result of the heavy industry program’s increasing debt.
Malaysia experienced a recession in 1985, with its gross domestic product (GDP) declining by 1%. In 1985, the unemployment rate was 5.6 percent, while in 1986, it was 7.4 percent. In 1987 and 1988, commercial banks’ non-performing loan (NPL) levels reached a high of 30%.
The government then implemented a budgetary strategy of austerity and depreciated the local currency. In addition, there was a focus on increasing foreign direct investment in the economy. In 1989, new prudential laws were enacted for the financial sector.
One of the greatest economic crises Malaysia has ever experienced was the Asian financial crisis in 1997/98. (until now, that is). According to scholars, the primary culprit was the widespread acceptance of financial deregulation in both capital markets and the banking sector.
“According to a report issued in 2012 by The North-South Institute, “unregulated capital movements combined with fixed exchange rates resulted in a boom of capital flows into Southeast Asian economies, which took advantage of arbitrage opportunities.”
When the Thai baht was attacked by speculators in mid-May 1997, the ringgit was hit hard as well, plummeting to a low of 4.90 versus the US dollar in 1997, down from 2.40 earlier.
From a surplus of RM10.3 billion in 1996 to a deficit of RM12.9 billion in 1997, net portfolio investments dropped by RM22 billion. The stock market fell, and firms that were heavily leveraged in foreign-denominated debt began defaulting one by one, causing NPLs to skyrocket, resulting in a banking crisis.
The economy was in decline, with GDP decreasing by 6.7 percent in 1998 after growing by 7.7 percent the year before. In January 1998, the ringgit hit a low of 4.90 against the US dollar.
The country’s actions were considered unconventional at the time. To combat ringgit speculation, a prohibition on off-shore market trading of the local currency was enacted in September 1998.
The ringgit exchange rate was set at 3.8 to the US dollar by Tun Dr Mahathir Mohamad, who was the Prime Minister at the time. Malaysia has also implemented selective capital controls in order to discourage the use of speculative short-term portfolios.
In July 1998, the government launched an RM2 billion fiscal stimulus plan to help the economy recover, which amounted to around 1.5 percent of GDP at the time.
The government established numerous entities to reform financial and non-financial enterprises on the corporate front. The Pengurusan Danaharta Nasional Berhad Act of 1998 gave the national asset management corporation the authority to take over nonperforming loans from banks and restructure and manage them. Danamodal Nasional Bhd was formed to recapitalize and reorganize financially ailing companies. Mergers and acquisitions strengthened the financial industry even further.
The Corporate Debt Restructuring Committee was established to provide a forum for struggling businesses and lenders to work out viable debt solutions without resorting to legal action.
Excessive lending by banks, particularly in the housing market, triggered the worldwide financial crisis of 2008/09, which began in the United States. Banks were repackaging and selling these debts to investors. When the housing bubble burst, it sent borrowers into default and set off a chain reaction that damaged the US financial sector, forcing some to go bankrupt.
Malaysia was negatively impacted in terms of financial and trade networks. Malaysia, as a trade-dependent economy, suffered significant losses in trade and investment.
Exports plummeted 45 percent in January 2009, to RM38 billion, from RM64 billion in July 2008. Malaysia, like other Asian countries, has seen capital flight. As international investors repatriated assets, portfolio investments suffered massive outflows, and the stock market, which had a high foreign participation rate, took a hit.
In 2008 and 2009, the government launched two fiscal stimulus programs totaling RM67 billion, or nearly 10% of GDP. The first stimulus (RM7 billion) was intended for initiatives that would have a large multiplier effect on the economy. They also took steps to encourage private consumption, such as lowering the Employees Provident Fund contribution rate from 11% to 8%.
The second stimulus package, worth RM60 billion and comprised of a mix of fiscal injections, government guarantees on bonds and private loans, equity holdings in projects with high multiplier effects, private finance initiatives, and tax incentives, was hailed as the largest in history.
Meanwhile, Bank Negara Malaysia slashed interest rates three times for a total of 150 basis points, bringing the overnight policy rate to 2%.
How did Thailand bounce back from the 1997 financial crisis?
Thailand’s economy has recently recovered from the 1997 Asian Financial Crisis and the 2008 “Lehman Shock,” and is presently growing at a steady rate of about 8% in 2010. JICA-RI is now working on a research project that examines Thailand’s recovery process in order to determine the implications for Asia’s long-term economic growth. In this interview, JICA-RI research fellow Yasunobu Okabe discusses a field study on recovery causes and future difficulties in Thailand’s economy that took place in Bangkok from November to December 2010.
-Thailand has experienced tremendous economic expansion, earning the moniker “East Asia Miracle,” but it was rocked by two financial crises beginning in the late 1990s, only to recover. What caused it to be resurrected?
There were two significant factors, in my opinion. The first was a financial restructuring program that encouraged the sale of nonperforming assets (NPLs) and strengthened banks. The other is Thailand’s export-driven policy, which is reliant on foreign firms.
-What financial restructuring measures did Thailand’s government take?
It restructured the banking industry by shutting 56 financial businesses first, then urging commercial banks to sell nonperforming loans (NPLs) and boost their capital bases. It encouraged nationalization and mergers with foreign banks for small and medium-sized banks. A public asset management firm was founded in 2001, four years after the 1997 crisis, to expedite the liquidation of distressed assets. These therapies were found to be successful. By 2008, they had reduced the NPL percentage from 40 percent after the crisis to 5.7 percent. The capital adequacy ratio improved to 13.8 percent as well. With the strengthening of banks, the amount of loans restored to pre-crisis levels in 2005, alleviating the debtor enterprises’ burden.
-How did Thailand’s financial reorganization compare to that of South Korea? Korea’s economy was likewise hit hard by the 1997 financial crisis, but it has steadily recovered since then.
Thailand’s reorganization was more slower than Korea’s due to disparities in their approaches to financial restructuring. Korea took a government-led approach, with the government actively pushing the disposition of nonperforming assets (NPLs) and bolstering capital bases. The Thai government, on the other hand, pursued a more private-sector-driven strategy, essentially requesting that private banks voluntarily apply these protections. Historical causes, such as traditional feelings against government interference in the financial system or the banking sector’s continuous oligopoly, are driving this strategy. We can’t just state that Thailand should have had a government-led strategy that would be a broad generalization. Even while financial restructuring played a significant part in the economic recovery, it is safe to state that this private sector-driven approach was the main cause of the delay.”
-How has Thailand’s economic recovery been impacted by the sluggish bank restructuring process?
Commercial banks with significant NPLs were naturally cautious and hesitant to lend money. It’s worth noting that the proportion of loans to manufacturers, who constitute Thailand’s economic engine, has gradually declined, decreasing to around 20% in 2009. The proportion of loans for personal expenditure, on the other hand, had risen to above 20%. This shows that commercial banks played only a minor part in the manufacturing industry’s recovery.”
-However, the manufacturing industry recovered and made a significant contribution to the economy’s recovery. Do you think the manufacturing business in Thailand has a lot of potential?
Thailand’s manufacturing industry, which includes autos, computers, and associated parts, is unquestionably the country’s most important export sector. It is the driving force behind Thailand’s economy. However, the reality is not so straightforward. As a result of accepting a large number of foreign companies and encouraging economic methods that rely on foreign capital, the majority of manufacturing companies are now foreign-owned (Japanese, for example). For the past few years, this has been a source of concern.
-Does this imply that Thailand’s economic progress will be limited as long as it stays reliant on foreign capital?
The’middle-income trap,’ as defined by the World Bank, means that rapid economic growth cannot be sustained exclusively via the accumulation of production resources such as labor and capital. This means that unless Thailand breaks free from this trap, it would be unable to rise above its current middle-income status and compete with countries such as South Korea and Taiwan. Thailand must develop value-added products through technical innovation and productivity enhancement in order to join the high-income group or, in other words, the entire economy must be upgraded. There is a growing debate over the economic upgrade constraints in countries that are still reliant on foreign finance. Many experts believe that assisting indigenous businesses in growing is a critical issue in Thailand.”
-An export-led growth plan would make the economy extremely reliant on international markets. Is this something to be concerned about?
The economy will be exposed to the direct effects of global recessions if it is overly reliant on foreign markets. As a result, the Thai government has been debating how to increase local demand. In a recent article, a central bank official from Thailand was quoted as suggesting that the country’s export-driven economic strategy should be altered and replaced with a domestic demand-driven one.
However, there is a widespread belief that a domestic demand-driven strategy would be tough. This is because, in order to improve domestic demand, salaries must be raised to increase people’s purchasing power, but this will raise the price of exported goods.
-Which path is Thailand’s economy taking: local demand expansion or reliance on exports?
Many economists told us during our field survey that the foreign capital-dependent, export-driven strategy may still be effective for the time being. They are aware that, despite the relative insignificance of domestic enterprises, both economic growth and upgrading are taking place at the same time. Nissan Motors, for example, has begun to produce environmentally friendly automobiles in Thailand and is re-importing them to Japan. It’s believed that other Japanese automakers would follow suit. Such programs are possible in Thailand because of the concentration of automobile industries. So, in general, it is assumed that industrial upgrades can take place even if the manufacturing industries are not reliant on local capital.
-How about attempts to increase domestic firms’ competitiveness? Is progress being made, and if not, why not?
Thai Summit, for example, is a high-performing indigenous parts maker in the vehicle sector. That, however, is an exception. The majority of domestic businesses have not yet evolved into assembly or parts manufacturing businesses. Government capability the ability to design appropriate industrial policies is a key component in fostering company growth. It is the ability of government agencies dealing with economic issues to do things like share aims and interests with private businesses, increase the credibility of their policies and activities, and monitor economic conduct. However, because Thailand still lacks this type of government competence, local company development remains a challenge.
What I’ve talked about today is only one facet of Thailand’s economic recovery. However, by carefully analyzing the specific data, I should be able to acquire a clearer picture of how various Asian countries recovered from financial crises. Further research, I believe, will assist us in examining the political and economic conditions that promote Asian economies’ recovery, as well as JICA’s involvement in assisting these processes.
In 1989, what happened to the economy?
According to the Commerce Department, the US economy finished 1989 with its worst performance in three and a half years, growing at an annual pace of only half a percent in the fourth quarter.