Asian Financial crisis

A period of financial upset, a period of financial crisis or Asian contagion are all synonymous to
Asian financial crisis.

It began in Thailand in 1997 and gripped much of Asia.

The above picture shows the countries that were affected by the Asian financial crisis

Introduction –

It started when the Thai baht as well as the currencies in many other South Asian countries
collapsed. The rounds of rapid currency devaluation followed by one after the other caused
financial instability to spread in countries like Thailand, South Korea, Indonesia, Laos, Malaysia
and the Philippines. As a result of the currency devaluation, the lenders and the investors
panicked and there was rampant speculation. So the Asian economy destabilized and also,
withdrawals of credit and investment funds created a credit crunch. The countries that were
affected by this financial crunch desperately needed capital but due to the unavailability of the
funds there was economic destabilization. This not only accounted to economic turmoil but also
was the reason for the political problems, most notably in Indonesia.

When the Thai government decided to float the baht cutting its peg to the USD the situation of
crisis occurred with the financial collapse of the Thai baht. Thailand was already burdened with
the foreign debt and it made the country bankrupt even before its currency collapsed. With the
spread of the crisis many parts of south-east Asia and Japan experienced slumping currencies and
the stock markets as well as the prices of the other assets were devalued. The countries that were
most affected by the crisis were Indonesia, South Korea and Thailand. In addition to these
countries Hong Kong, Malaysia, Laos and Philippines were also hurt by the slump. Although the
countries like the people’s republic of China, India, Vietnam, Taiwan, Singapore and Brunei
were less affected as compared to the other countries but still they suffered due to the loss of
demand throughout the region. The governments of the countries of Asia had sound fiscal
policies. But still International Monetary Fund stepped in so as to initiate a $ 40 billion program.
It took such a major step so that it can stabilize the currencies of South Korea, Thailand and
Indonesia as these were the economies that were hard hit by the crisis.

Following are the consequences of the crisis inside as well as outside Asia:

Some of the significant macro level effects were sharp reductions in the value of the currencies,
stock markets and the prices of other assets of the Asian countries. Many of the businesses
collapsed and due to which millions of people fell below the poverty line in 1997-98. Upon the
onset of the crisis in mid July 1997, the interest rates were raised to 32% in the Philippines and
65% in Indonesia but still their local currencies depreciated and they performed no better than
the countries like south Korea, Thailand and Malaysia which had their high interest rates set at
generally lower than 20 % during the Asian crisis. Owing to this, grave doubts about the
credibility of the IMF were created.

The economic crisis also caused political upheaval and a major change came in the form of the
resignations of the president of Indonesia i.e. Suharto as well as the prime minister of Thailand
i.e. Chavalit Yongchaiyudh.

There was a decline in the value of the nominal US dollar GDP by US$9.2 billion in 1997 and
$218.2 billion (which equals to 31.7 %) in 1998. The $170.9 billion fall in 1998 in South Korea
was almost equal to 33.1% of the GDP of 1997. There was a fall in the nominal value of the US
dollar GDP per capital which was as follows: Indonesia 42.3 %, Thailand 21.2 %, Malaysia 19
%, South Korea 18.5 % and Philippines 12.5 %. According to the report of the CIA world fact
book the per capita income which is measured by the purchasing power parity declined from
$8800 to $8300 between 1997 and 2005 in Thailand, from $4600 to $3700 in Indonesia and from
$11100 to $10400 in Malaysia whereas during the same period the per capita income of the
world rose from $6500 to $ 9300.

To talk about the consequences of the economic crisis outside Asia, the first entity that comes
into picture is the international investors who were reluctant to lend to the developing countries
which led to the economic slowdown. The prices of oil fell sharply which came as a powerful
negative shock. It came down to $8 per barrel towards the end of 1998 which caused a financial
pinch in the OPEC nations and other oil exporters. The reduction in oil revenue also contributed
to the 1998 Russian financial crisis which also caused the long term capital management in the
United States to collapse.

The need to consider the possibility of setting up a series of financial indicators to reflect the
signals of impending financial crisis and also providing a coherent approach to prevent contagion
effectively from external financial crisis becomes necessary owing to the more dynamic, more
uncertain and more complicated nature of the financial conditions.

Role of communication -

The risks due to communication that can be faced by the economy or the nations which were
affected by the crisis can be as follows –

1) As the functions were sensitive and complex in nature it was susceptible to adverse
public opinion and speculations.
2) As it had a vital impact on the country’s economy therefore its decisions and actions gave
rise to public scrutiny
3) Due to the market being fluid which was brought about by financial globalization and
also, the power of information technology it was more vulnerable to crisis.

Following is the element of communication that gave an indication in the situations of crisis :

The sudden announcement of Thai baht floats on July 2.

Following are the communication factors that contributed directly to the deterioration of the
currency situation:

The leakages that were reported by the press

There was lack of correct and understandable information

The media reporting and focus was intense

There were rumors and speculations on the events and developments

Following were the major considerations in the communication response:

Sensitive information was safeguarded

Greater transparency was provided

There was openness in public transactions

The dangers of unqualified transparency on certain transactions were also safeguarded

Following were the reasons due to which a place cannot be considered an appropriate launching
pad for the crisis communication –

In case of inadequate experience in dealing with the media

When the policies and practices were no longer responsive to the requirements of the current
communication environment

In case one had limited capability to process as well as manage information

To follow a suitable communication strategy –

Although the way of communication was culture bound but it allowed greater openness and
accessibility with the strategic exposure of the principal spokesperson

Following were some of the qualities of the spokes person that should be taken into
consideration-

Credibility

Competency

Communication skills (includes both speaking as well as listening)

Experience along with the relationship with the media

The information was communicated primarily to two major groups of audiences which included
primary as well as secondary audiences.

Primary audiences were the market players, bankers and media whereas the secondary audiences
included the general public.

Following was the message strategy that was followed –

A storyline was prepared and there was no core message (facts speak for themselves)

Specific messages were prepared for specific situations

The audience for whom the message was prepared and also, the instrument that was used to
deliver the message had a great influence on the content, length and treatment of the message.

Regular updates were given along with prompt announcements but there was no preliminary
information

The messages were consistent with action which focused on the public good and were presented
against a larger perspective

There was a greater appeal to reason rather than emotion

Following were the strengths of the communication such that it helped a lot –
It helped to reach a wide audience and also to maintain a high degree of connection with the
primary audience

The messages were delivered timely and were accessible by all

Maintained a balance between satisfying the intense need of public for the information
maintaining the confidentiality of some of the information

People showed trust in the messages that were delivered

The positive relationship with the media was used to the fullest

Print media was preferred which nourished the communication with the primary audience

Following were the weaknesses of the communication –

Rare use of the national language or the local dialects

Technical information and jargons were used liberally

The channels that were used were not commonly patronized by a greater majority of the general
public

Some suggestions / recommendations or observations –

Confidentiality remained an issue with media

For a sustained and proactive correspondence with the public, it was vital for the organization to
have a capable and an efficient, formal communication structure with a good communication
plan