According to economists, there are five main reasons for the East Asian currency crisis and the IMF in July 1997 that caused a period of economic unrest and turmoil in the Southeast Asian financial markets. The countries that the crisis was mainly affected included during Thailand, Indonesia, Malaysia and South Korea. Inadequate foreign exchange reserves, improper handling of assignments and inadequately developed financial sectors in developing countries in Asia wereheld as the main reasons for the decline in the local currency exchange rates against the U.S. dollar during the period.
The entire episode of the economic crisis started due to improper speculation. Speculators forecasted a decline in international market growth and started selling South East Asian currencies. With this, there was a currency depreciation and sudden drop in the value of the Thai baht, Malaysian ringgit, Philippine peso and Indonesian rupiah. For this reason, all these markets hadsell their dollars to buy back their currencies. This led to a rapid decline in foreign exchange reserves. In the second phase of the crisis, the lower value of the neighboring currencies affected other Southeast Asian currencies like Taiwan dollar, Korean won, Singapore dollar and Hong Kong dollars. Governments raised interest rates for the purpose of defending the local currency and inviting foreign capital. Due to the rapid decline of the economy began to remove investorstheir investments from the markets, thereby initiating a fall in share prices. IMF with support from the World Bank and Asian Development Bank arranged support packages of around 120 billion U.S. dollars to rescue these markets.
Some economists believe that the distorted macroeconomic policies and the fixed exchange rate of the currency as a major cause of the economic crisis in 1997.
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