What Caused the 1997 Asian Financial Crisis — and What It Changed
Play The 1997 Asian Financial Crisis →
Causes
- Fixed exchange rate pressure: Several economies pegged their currencies to the U.S. dollar, creating vulnerability when that peg became unsustainable.
- Large current account deficits and short-term foreign debt: Many affected economies had borrowed heavily in foreign currency, which became far more expensive to repay once local currencies devalued.
- Speculative currency attacks: Investors betting against the pegs added pressure that accelerated the devaluations.
Effects
- Sharp regional recessions hit Thailand, Indonesia, South Korea, and other affected economies.
- Large IMF bailout packages, often tied to reform conditions that proved politically controversial.
- A lasting shift toward large foreign currency reserves across many Asian economies, intended to guard against future speculative currency attacks.