Welcome back to Asia in Science!
Writing about finance in a science blog sounds slightly outlandish, but without STEM, Asia’s post-crisis recovery would certainly falter. Today’s blog is on Asia’s period of financial instability.
The Contagion: 1997 Financial Crisis
The contagious spread of market disturbances, a domino effect of economic instability, and an elephantine tremor shaking the financial foundations of the largest continent were the cascading effects of the fall of the Thai Baht.
Intense speculative attacks, coupled with Thailand’s growing trade deficit and over-reliance on short-term loans, led the country’s exchange rates to collapse.
Thailand’s fixed exchange rate policy pegged the baht to the U.S. dollar, leading many speculators to believe that the currency was overvalued. Despite the central bank’s risk-spreading defense, numerous bets against the Thai baht forced the government to let the baht float on July 2, 1997.
Ballooning under low-interest foreign debts, the contagion caught a multitude of Asian economies, from South Korea in the north to Indonesia and Malaysia in the south. The economies of these countries experienced sharp contractions. Indonesia’s GDP, for instance, fell by 13.7% in 1998. Unemployment rates soared as businesses went bankrupt, particularly in sectors like manufacturing, real estate, and construction. Poverty rates spiked, with millions of people falling below the poverty line.
In hopes of stabilizing their economy, these nations received large-scale bailout packages from the International Monetary Fund (IMF). Turning out to be a trojan horse, the funds came with stringent austerity measures, leading to social unrest and political turmoil. This was observed particularly in Indonesia, where the crisis contributed to the fall of President Suharto after 31 years in power.
In the aftermath of such a crisis, most countries have shifted toward an export-led growth strategy, fuelling economic stability and boosting technology sectors. Applications of complex derivative instruments, refined quantitative finance models, and hedging strategies in foreign exchange markets emphasized the importance of financial engineering in risk mitigation. Developing predictive models and using data-driven insights through big data analytics was pivotal. It enabled governments and central banks to monitor real-time data on currency flows, trade balances, and market sentiments.
Emerging Fintech innovations, Blockchain technology, and cryptocurrencies gained attention post-crisis, offering decentralized and secure alternatives for financial transactions.
A historic turning point, the 1997 crisis, has reshaped Asia's approach to financial policy and economic growth. Highlighting the critical importance of financial regulation, currency risk management, and global cooperation, this disaster gave rise to international tech giants like Samsung and Hyundai.
I hope you found today’s blog interesting and learned something new. Thank you for reading my blog! Please stay curious and alert for new blogs on Asian scientific contributions and inventions.
-Mihika Singhania
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