Singapore was one of the countries
which are affected by the 1997 Asian Financial Crisis. The financial crisis started
with the floating of the Thai baht in July 1997 (Ngiam, 2000). At that time,
Singapore only made a small open economy, where Singapore’s economy was exposed
and influenced by economic changes and the development of the surrounding area.
However, during the financial crisis, Singapore has been preparing to face it. Therefore,
Singapore was not particularly impressed with the financial crisis in 1997
compared with other countries such as Thailand, South Korea, Indonesia, Malaysia, and the Philippines despite there are several impacts of the financial crisis on Singapore.
During the crisis, Singapore’s
exports to the crisis-hit economies were badly affected as a result of severely
diminished regional demand, due in part to the collapse of their currencies (Ngiam,
2000). This is because the Asian crisis started with currency attack in the
region. The first region that feels the
pressure of the attack is baht Thailand due to overvalued of the exchanged rate
that holds on US dollar. Therefore, the
value of baht Thailand is depreciated
rapidly and attracted the attention of banks and investment funds to the
situation of other countries in the region. Afterwards, other currencies such
as Indonesia, Malaysia, Philippines, and South Korea also affected by this crisis. As the results, it
also affected Singapore in exporting because of the currencies of the region is
decline. It also makes the Singapore’s
exports with the third-country market becoming
less competitive due to the condition of Singapore economies.
The crisis also makes the Singapore’s banks weak due to large loan
exposure to these country which affected with the crisis. Non-performing loans
(NPLs) of local banks operating in the region have a high demand. If domestic
and other global loans were added to regional borrowing, the NPL ratio for
Singapore banks will increase. Even, the Deputy Prime Minister of Singapore
said that the NPL levels did not threaten the financial health of any of the
local banks because they had set aside substantial provisions and the
collateral backing of these regional loans exceeded the regional NPLs
outstanding (Ngiam, 2000). However, NPLs at Singapore are high because of the local banks only write them when
all the means to recover loans have been exhausted as well as due to the large
NPL classification (Ngiam, 2000).
In addition, the large outflow of
Singapore’s investment into the region in the early 1990s, in response to a
government-led regional drive, suffered severe deterioration. Singapore economy cannot be completely protected
from the regional economic crisis, as the
country has a strong trade and financial relationship with the region. This is because Singapore is involved with
affiliation with countries such as Malaysia, Thailand, Indonesia and the
Philippines, which is called as ASEAN+4. Due to its regional exposure,
Singapore felt a devastating fall from the impact of the overflow of the Asian
Furthermore, Singapore’s brokerage firms were hurt when
the Kuala Lumpur Stock Exchange (KLSE) imposed a new rule on August 31, 1998
requiring all trading in Malaysian shares to be done on the KLSE (Ngiam, 2000).
The new regulation of KLSE, together with the enforcement of exchange controls
by Malaysia has undertaken to repatriate
all the ringgit held abroad and end the all offshore trading of ringgit,
retaining Malaysia securities sales revenue over the country for one year, and
requesting central bank approval in order to convert ringgit into foreign currency.
This control has effectively closed Malaysia’s stock trading at Central
Limit Order Book (CLOB) International of Singapore.
As the result, the Asian
Financial Crisis in 1997 also influenced
the condition of economies in Singapore. Even
though Singapore is not affected by
the crisis worse compared to the surrounding
region, but Singapore still felt the side impact
of the crisis.