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The Asian Financial Crisis — 1997 to 2000

The IMF Rescue Packages of 1997

Explain what the IMF lent to Thailand, Indonesia and South Korea in 1997, how the money was paid, what the governments promised in return, and why the sums promised were larger than the sums paid.

Before you start

What you'll be able to answer

  1. What did the IMF lend to Thailand, Indonesia and South Korea in 1997, and how was the money paid?
  2. What did the three governments promise in return?
  3. Who else offered money, and why was less paid out than was promised?

Where this sits

The Asian Financial Crisis — 1997 to 2000 · this module is lit

  1. 2 Jul 1997Thailand stops holding the baht at a fixed rate to the dollar and lets it float
  2. 14 Aug 1997Indonesia lets the rupiah float
  3. 20 Aug 1997The IMF approves a loan of about $3.9 billion for Thailand
  4. Nov 1997The IMF approves a loan of about $10.1 billion for Indonesia
  5. Nov 1997Indonesia closes 16 banks
  6. 4 Dec 1997The IMF approves a loan of about $21 billion for Korea
  7. 24 Dec 1997Korea's programme is speeded up
  8. 21 May 1998President Suharto of Indonesia resigns
  9. Aug 1998A crisis in Russia spreads panic beyond Asia
  10. 1-2 Sep 1998Malaysia brings in rules on money leaving the country
  11. 1999Growth returns in most of the region

On 20 August 1997 the IMF agreed to lend to Thailand

On 20 August 1997 the board of the International Monetary Fund (IMF), which lends to countries that cannot pay their foreign bills, approved a loan to Thailand. It was worth up to about 3.9 billion dollars, to be drawn, that is taken in parts, over 34 months. Seven weeks earlier the country had let its currency, the baht, float, so that the market set its price. The government could not take the whole sum at once; the rest would come later, and only on conditions.

Predict first

Of the 3.9 billion dollars, how much could Thailand draw at once?

An IMF loan was measured against a quota

Each member of the IMF pays in a sum called its quota, which sets its voting weight and how much it can normally borrow. The loan was a stand-by credit: a sum the country could draw on in parts, not a single payment. The IMF approved it fast, under emergency procedures it had adopted in 1995 for members facing a crisis in their foreign payments.

The money was to cover the gap in the country's foreign payments and rebuild the reserves of its central bank, the dollars and other foreign money it holds. Japan and other economies in the region pledged more at a meeting in Tokyo on 11 August, and the World Bank and the Asian Development Bank added loans of their own. With the IMF's loan, support for the country came in the end to about 17 billion dollars.

Most of Thailand's loan was held back

About 1.6 billion dollars was available at once. A further 810 million was due after 30 November 1997, but only if the government had met the targets set for the end of September and the IMF had completed its first review of the programme. After that, money would come every three months, each part again waiting on the targets and a review.

So the IMF held most of the loan back. A government that fell behind on what it had agreed would find the next part delayed. The first review was completed on 8 December, and that part was paid.