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The situation was exacerbated by the fixed exchange rate regimes many of these countries maintained. For instance, before the crisis, the Thai baht was pegged at approximately 26 baht to 1 U.S. dollar. This stability, while initially appealing for foreign investment, rendered countries vulnerable to external fluctuations. As investor sentiment turned, and foreign capital retreated, many countries found themselves unable to defend their currencies, leading to devastating depreciations.
Consequences of the Crisis
The fallout from the Asian Financial Crisis was severe and widespread:
- Economic Recession: Nations like Thailand, Indonesia, and South Korea faced significant reductions in GDP, surging unemployment rates, and a noticeable downturn in living standards.