II:Ripples in Time: Unveiling the Pervasive Impact of the Crisis

Countries affected by the crisis experienced a significant depreciation of their currencies, an increased burden of external debt and significant declines in both stock and bond markets. Investors lost confidence in the market, leading to further capital outflows. Throughout Asia, the influx of capital slowed down substantially or even reversed.

                       How a currency crisis in Thailand led to a banking crisis

                                                       Source:Khan Academy

Prior to the crisis, the Thai baht had maintained a stable exchange rate of approximately 26 to the U.S. dollar. However, by the end of 1997, it underwent a drastic devaluation, losing half of its value and plummeting to 53 to the dollar by January 1998. Indonesia's rupiah, trading at 2,400 to the dollar in June 1997, witnessed a freefall to 14,900 by June 1998—less than one-sixth of its pre-crisis value.

 

The repercussions of this financial turmoil were severe for certain nations, plunging them into a severe recession. Indonesia, for instance, saw its gross domestic product (GDP) growth plummet from 4.7% in 1997 to a staggering -13.1% in 1998. In the Philippines, the decline was from 5.2% to -0.5% during the same period. Malaysia experienced a parallel downturn, with GDP growth sliding from 7.3% in 1997 to -7.4% in 1998, while South Korea's economy contracted from 6.2% to -5.1%.

                           Riggit and Peso to USD exchange rate in 1997-1998

           Source:internationalbanker                                           Source:internationalbanker          

 

The Asian financial crisis also had an impact on the political stability. Many political leaders in the region faced criticism and blame due to the outbreak of the crisis. The economic crisis that erupted in Indonesia led to the collapse of President Suharto's three-decade-long authoritarian rule. From a societal perspective, millions were thrown into poverty - Indonesia saw an "explosion of poverty," with the number living below the poverty line rising from 11% to 20%.

 

The intervention of international organizations such as the International Monetary Fund (IMF) and the World Bank helped to mitigate the crisis by injecting approximately $118 billion into the economies of Thailand, Indonesia, and South Korea.

 

                                                       Source: Investopedia

Indonesia's problems persisted after the Asian financial crisis. Economic growth has slumped and the currency has continued to stay low. There was widespread poverty, high unemployment rate and social unrest. As Joseph Stiglitz highlighted, the crisis has led to an increase in social inequality, widening the gap between rich and poor, and calling for more inclusive and sustainable economic growth models to address these issues.