1997 Asian Financial Crisis

The outline

1. Financial collapse of the Thai Bahtin in Thailand in July 1997 --> Affected currencies, stock markets, and other asset prices in other Asian countries.

2. The price volitatility increased --> credit crunch

3.credit crunch --> companies suffer higher funding cost and even borrow no money --> companies go bankruptcy --> many people lost their jobs --> economy step in a recession

4.government decrease interest rate --> stimulate the capital market and encourage new investment

5.companies start to gain revenue --> peolpe have new jobs and start to spend more money--> economy step in a recovery

Essay:

In July 1997, the Thailand government gave up sticking their currency, Thai Baht, to a fixed price to US dollar. Then this decision led to a financial collapse of the Thai Baht and affected other currencies in a number of Asian countries. Not surprising, Taiwan was one of the victims,too. According to this turmoil in the currencies market, Taiwan stock market and other economy activities also suffered a big price volatility which make the banking system hastened the procedure to collect their default lending. Just like a chain of collapse buildings, the serious price volatility caused the credit crunch and made companies suffer more pain on the higher interest expense and harsher funding criteria. During this hard time, some companies could not keep their operating and went bankruptcy one afer one. People started to lose their job due to the unpredictable economy environment and also this situation made the Taiwan economy step in a long recession period.

To slove this economy problem, the government took a aggressive action, decreased the interest rate to a historical low, to stimulate the maret and investment. This monetary strategy encouraged the market participants to borrow cheaper money to do some new investment. Then most companies begun to profit and furthermore hired more employees, which decreased the unemployment rate and increased families' disposable income. Eventually, the economy in Taiwan stepped into the recovery period and became stable after the currency turmoil.