Far-East economic crisis of 1998 - Hamad Mohamed

The Far-East economic crisis that occurred in 1998 is probably one of the most important events in the region for the past decades. The crisis not only affected the region but raised fears to lead to a worldwide economic meltdown. The crisis first started in Thailand when it was forced to stop the peg of its currency with US dollar and make it a floating currency due to the lack of reserves of foreign currency to support its peg. Later, the crisis spread to Malaysia, Indonesia, Philippines and South Korea. At first the crisis was not given enough attention and thought that it will only last for several months. Instead the financial crisis has been transformed into a full-blown recession or depression. GDP started falling and unemployment rates started rising in the affected countries. Moreover, the threat of recession started to spread in the region reaching Russia.

Initially the crisis was blamed on the bad actions of banks, financial institutions, and the over speculation in the real estate and stock markets which caused bubbles that burst later in the crisis. However, the main causes of the crisis are still anonymous and still being debated in academic institutions.

What made the impact of the crisis bigger and worse are the huge capital outflows from the region due to the crisis. Figures show that around $184 Billion came into the region between 1994 and 1996, and suddenly in 1997 when the crisis hit $102 billion went out of the region. That had a great impact due to the liquidation of assets which reduced its prices and capital outlflows which led to the depreciation of the currency. As a result, the countries affected had to pay more of their currency to pay off their foreign debts, because now they needed more of their week currency to buy less of foreign currency in order to pay off their foreign debts.

 The crisis in the region had a huge effect on the currencies of the affected countries, note the table below showing the exchange rates of the currencies compared to the US dollar:-

Currency	Exchange rate (per US$1)[41]		Change
	June 1997	July 1998
Thai baht	24.5	41	40.2%
Indonesian rupiah	2,380	14,150	83.2%
Philippine peso	26.3	42	37.4%
Malaysian ringgit	2.5	4.1	39.0%
South Korean won	850	1,290	34.1%