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The 1997 Crisis: The Greatest Asian Crisis in History? - VisualPolitik EN - YouTube
Channel: VisualPolitik EN
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[Music]
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we are back in the 90s the countries of
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southeast asia along with south korea
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seem to be taking on the world they are
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the next candidates to join the list of
[10]
the great economic success stories banks
[12]
investment funds pension funds insurance
[14]
companies all want to invest in this
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part of the world south korea and
[18]
southeast asia have become some of the
[20]
great jewels in the financial world
[22]
however on the 2nd of july 1997
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everything fell apart on that day one of
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the greatest financial cataclysms in
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human history suddenly began to unfold
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in just a few months the whole world was
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going to see how these once booming and
[35]
prosperous economies were about to sink
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into the abyss
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[Applause]
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and the fact is that within just a year
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of the crisis breaking out the damage
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had exceeded all reasonable expectations
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the depreciation of local currencies
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surpassed 35 percent in all cases in the
[51]
case of the indonesian rupiah it was a
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staggering 83 percent and we're not just
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talking about currencies the same thing
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happened with the stock markets the
[59]
stock markets in indonesia south korea
[61]
and thailand recorded falls of over 50
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percent
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and take note in case you didn't catch
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what that meant let me illustrate that
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in another way this means that a dollar
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denominated investment in stock markets
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of these countries would have recorded a
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loss of between 60 and 93
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in just one year for example 1 000
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invested in the south korean stock
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market in june 1997 would have
[84]
diminished to a 290 position in just 12
[88]
months
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but we're not just talking about the
[92]
world of finance the economies of these
[93]
countries suffered considerable damage
[95]
suddenly rising unemployment bank
[97]
failures and business closures became
[99]
daily news events in one year the
[101]
economy of south korea registered a fall
[103]
of 5.8 percent that of thailand 10 and
[106]
that of indonesia a little more than 13
[109]
it was the great asian financial crisis
[111]
of 1997.
[115]
but what happened that caused such
[117]
trending economies of the day to
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suddenly collapse like a house of cards
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what were the causes of this savage
[123]
crisis these are the questions we will
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try to answer in this new video that we
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have prepared in collaboration with
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value school listen up
[131]
the asian economic miracle
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[Music]
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if before july 1997 any analyst had
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predicted the economic cataclysm that
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was going to occur during the following
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months it is possible that he or she
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would have lost their job no one
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absolutely no one would have taken such
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a prediction seriously just one month
[150]
before the outbreak of the crisis the
[152]
average forecast for economic growth in
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the region was around seven percent this
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was in line with the performance of
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these economies in previous years
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at the beginning of 1997 everything
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seemed to be in order south korea and
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the southeast asian countries had their
[166]
public accounts in order they had
[167]
maintained very high levels of economic
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growth for years inflation was under
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control and their savings and investment
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rates were very high
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[Music]
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nothing indicated what was to come on
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the contrary the prospects were good
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very good so as you can imagine
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investment banks funds hedge funds
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commercial banks all the players in the
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financial world wanted a piece of this
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kind of economic miracle
[198]
in this way the inflows of capital that
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is funds money that were registered
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every year were enormous which in turn
[206]
fueled the feeling of prosperity the
[207]
stock markets were rising the price of
[209]
real estate assets just kept growing
[211]
there was money for all kinds of
[212]
projects and best of all with healthy
[214]
public accounts and an insatiable
[216]
appetite for investing everything
[218]
pointed to the prospect of continued
[220]
prosperity for the foreseeable future of
[222]
course it was clear that no one could
[223]
expect such a crisis in countries where
[226]
even the governments themselves had
[227]
fiscal surpluses
[229]
however we now know that the model had
[231]
cracks and that that's what we are on a
[234]
mission to investigate what were these
[236]
cracks what happened to make everything
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fall apart overnight well the time has
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come to get to work and examine all of
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those weak links listen up
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the cracks that caused the collapse
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[Music]
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okay we've already described it in the
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1990s south korea and southeast asia
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were enjoying a financial golden era
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however little by little some imbalances
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had developed which were not considered
[260]
important but that oversight would end
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up costing a lot
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you see in the early 1990s the united
[268]
states went through a mild economic
[270]
crisis that ended with the 1991
[272]
recession this caused the u.s federal
[274]
reserve to lower interest rates to well
[276]
below the rates that existed in south
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korea and southeast asian countries and
[280]
this together with the high rates of
[281]
economic growth that these countries had
[283]
been registering is what caused
[284]
international capital to begin flooding
[286]
into this region of the world capital
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that was added to the very high savings
[290]
reserves that these economies already
[292]
had in other words we are talking about
[293]
a series of events that suddenly
[295]
provided money for everything
[299]
and there there is the point when the
[301]
problems began on the one hand the price
[303]
of assets shot up while on the other
[304]
hand investments in all kinds of
[306]
projects multiplied the export industry
[308]
which by the way was favored by the
[310]
governments themselves created a huge
[312]
overcapacity and many of the real estate
[314]
and public works projects were barely
[316]
used when they were finished in other
[317]
words a lot of capital was being
[319]
invested in projects whose profitability
[321]
was more than questionable and so a
[324]
bubble was created and of course when
[325]
the united states began to recover and
[327]
alan greenspan's federal reserve began
[329]
to raise interests the attractiveness of
[331]
these markets began to decline but that
[333]
that wasn't the only problem that they
[335]
had to worry about
[337]
[Music]
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the rise in interest in the united
[340]
states led to an appreciation of the
[342]
dollar and therefore of currencies of
[344]
those countries which were picked to the
[345]
u.s currency by a fixed exchange rate
[347]
that in itself was one of the great
[349]
attractions those countries had for
[351]
foreign investors however this
[352]
appreciation of the currencies with
[354]
respect to other major currencies such
[355]
as the yen or the german mark caused
[357]
these asian countries to lose
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competitiveness to make matters worse in
[360]
1994 china had carried out a devaluation
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of the yuan more than 30 percent
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[Music]
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as a result export growth began to slow
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down for southeast asia and south korea
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in 1996. this had two consequences on
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the one hand it increased the
[378]
overcapacity of the export sector
[380]
further reducing the profitability and
[382]
even the viability of the investments
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made and on the other hand given the
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massive influx of capital of cash that
[388]
continued to arrive the loss of export
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momentum meant that the current account
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balance that is the difference between
[394]
income and the payments to the rest of
[395]
the world would register considerably
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large deficit levels
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[Music]
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the fact was that the accumulation of
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current account deficits was being
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financed by foreign debt so to give you
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an idea in 1996 the foreign debt of
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these countries exceeded a 165
[413]
of their gross domestic product faced
[415]
with such a scenario only one turning
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point was needed a minor interruption to
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turn the whole system upside down and
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that's just what happened on the 2nd of
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july 1997.
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thailand the turning point
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[Music]
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1993 in that year taking advantage of
[434]
the enormous influx of capital that was
[436]
flooding southeast asia the thai
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government decided to create an entire
[439]
international financial center in
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bangkok with the intention of competing
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with singapore and hong kong to achieve
[445]
this the thai government did what it is
[447]
usually done in such cases it is
[449]
regulations on the capital market
[450]
introduced tax incentives and promoted
[452]
the creation of a whole financial
[454]
industry and the truth is that things
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began to go in the right direction soon
[458]
bangkok was specializing in foreign
[460]
exchange lending operations that is
[462]
borrowing capital nominated in major
[464]
international currencies such as the
[465]
dollar and channeling it into all types
[467]
of investment projects in local currency
[469]
in this way bangkok became one of the
[471]
great gateways to the economies of
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southeast asia what happened is that his
[476]
experience as a financial center was
[478]
very limited and the regulations well
[480]
let's just say they were pretty
[481]
ineffective
[484]
but do you remember what else was
[485]
happening the enormous influx of capital
[487]
into this part of the world meant that
[489]
large amounts of resources were invested
[491]
in projects that would never be
[492]
profitable resources that don't forget
[494]
came from loans that there was little
[496]
hope of paying back and that is
[498]
precisely what led to a growing
[500]
deterioration in the credit portfolios
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of thai financial institutions or in
[504]
other words a whole lot more default
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take a look according to estimates made
[508]
after the crisis by the international
[509]
monetary fund loans in an erratic
[511]
situation that is that began to have
[514]
problems being repaid or paying interest
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reached levels of between 15 and 24
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however despite the fact that these were
[520]
figures that could make any analyst's
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hair stand on end none of this appeared
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in the bank's annual accounts lack's
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financial rules and lack of experience
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and supervision meant that loans in
[528]
irregular situations were refinanced
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without being classified as dubious and
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not only that interest that had never
[534]
actually been received was also usually
[536]
accounted for and many companies in
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trouble were lent even more money to pay
[540]
off interest they already owed on
[542]
previous loans that's just crazy
[548]
the fact is that with these techniques
[550]
profits were plumped up allowing
[552]
financial institutions to distribute
[553]
dividends give out huge bonuses and pay
[556]
taxes but all financed with more and
[558]
more debt it was a crazy race to
[560]
collapse that continued until it was
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simply too late because the thai
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financial institutions finally ran out
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of money and began to have trouble
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meeting their international creditors
[568]
remember that they had specialized in
[570]
raising capital from the rest of the
[572]
world
[576]
friends the situation became so critical
[578]
that between the months of march and
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june 1997 the central bank of thailand
[582]
secretly had to provide liquidity to the
[584]
country's financial institutions at
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bargain interest rates using its
[587]
international reserves the problem was
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that these reserves began to be consumed
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very quickly and as the situation of the
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banks continue to worsen on 2nd of july
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the thai government was forced to
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announce the end of the fixed parity of
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its currency the bart would no longer be
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pegged to the us dollar they no longer
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had anything to back up a currency that
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began to suffer enormous stress in the
[608]
face of the capital flight that was
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beginning to take place
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[Music]
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as you can imagine the end of the
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association with the dollar resulted in
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a huge collapse of the butt which far
[622]
from improving the situation of the
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banks only aggravated it why well
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because the banks had taken out loans in
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dollars that is its liabilities were
[630]
denominated in dollars and its assets in
[632]
local currency they owed dollars and had
[634]
nothing to pay them back with in july
[636]
1997 the imf estimated that the whole
[638]
amounted to at least nine percent of
[640]
thailand's gdp an overwhelming majority
[642]
of the financial entities were bankrupt
[644]
and according to the imf's own
[646]
technicians only the biggest banks would
[648]
manage to stay afloat suddenly
[649]
international depositors and investors
[651]
saw the writing on the wall not only in
[653]
thailand but also in all countries of
[655]
the region that shared the same economic
[657]
characteristics foreign lines of credit
[659]
dried up and capital flight dragged down
[662]
the entire financial systems of these
[663]
countries the contagion effect was total
[668]
if in 1996 indonesia south korea
[671]
malaysia the philippines and thailand
[673]
had received 66 billion dollars from
[675]
abroad in net terms in 97 they received
[678]
just 36 billion dollars the variation
[680]
amounted to 112 billion dollars 12
[683]
percent of the combined gdp of these
[684]
nations at the time the crisis was first
[686]
felt in thailand but in less than two
[688]
months it turned into a full-blown asian
[690]
crisis in just one month the south
[692]
korean one sank from 1 000 to 2001 on
[696]
the dollar in just one month
[698]
just a few weeks after the outbreak of
[700]
the crisis in thailand the forecast for
[702]
economic growth in these countries
[703]
change abruptly take a look
[705]
[Music]
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[Applause]
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[Music]
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in short this is the story of the 1997
[715]
asian crisis one of the biggest
[717]
financial crises in history a crisis
[719]
that forced the asian countries involved
[721]
to carry out enormous restructuring and
[723]
to receive bailouts of 120 billion
[725]
dollars despite this only south korea
[727]
managed to recover in a reasonably short
[729]
amount of time we are talking about a
[731]
crisis that had a lot of consequences
[733]
throughout the financial world
[734]
consequences which we will surely talk
[736]
about here on visualpolitik in
[737]
collaboration with value school so i
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really hope you enjoyed this video
[740]
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[743]
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the next video and if you want to learn
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[Music]
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