South East Asian Crisis
On the 2nd of July 1997, Asia was hit by one of the most devastating financial crises it has ever seen. Of all the financial crisis that have taken place, this was one of the most distressing in that it was totally unexpected. The purpose of this paper is to show that particular developmental strategies employed by these economies eventually led to their downfall. It will attempt to find out where the origins of the crisis lie, and what events started the cycle that eventuated with this disaster. In order to trace the events that led to the eventual collapse of the Asian economies, one must venture across the ocean to the United States. The issue of liberalisation first gained attention in the US during the Regan Administration. However, it was during the Clinton era that liberalisation became a top priority. Whereas previous governments had pushed for the liberalisation of Japan, one of Clinton's main foreign policy objectives was the liberalisation of the Asian economies. This process was pushed forth in Asia with such vehemence because the region held a lot of investment opportunities for American Banks, Brokerages, and other financial sector businesses. Unfortunately, Asia's economies were not structurally ready to deal with
Banks competed on the size of their portfolios, and this led to some of the frivolous, short term, investment that became synonymous with the region. Once the liberalisation was complete, these subsidies remained. As the money dried up, the entire system that had developed around this money also crumbled. Enough stress can not be placed on how the internal weaknesses of the Asian region led to this crisis. The entire system was dependent on a delicate balance between exchange rates and other monetary factors. Foreign investment had provided all the funding for banks in their ill-conceived ventures. Foreign currency reserves were exhausted in an attempt to pay for the deficit. Malaysia was one country that was able to reduce the degree of short-term speculation through a combination of various measure. The second phase of the liberalisation process consisted of openeing up the capital accounts of the region. At one point net inflows of capital actually went into the negative. This liberalisation led to intense competition in the Thai market. They had weak banking and legal systems that were unable, or unwilling, to regulate the flow of foreign capital in the country. Through this entire process, Thai governments were playing a delicate game trying to balance the exchange rate and the interest rate. In short, both the banking and corporate sector became extremely dependent on foreign short-term debt liabilities.
Common topics in this essay:
East Asian,
Thailand Asia,
Similarly Indonesia,
United Eventually,
Southeast Asian,
Southeast Asia,
,
Singapore Philippines,
Japanese Japan,
Thailand Philippians,
exchange rate,
asian economies,
east asian,
asian countries,
foreign investment,
current account,
fixed exchange rate,
southeast asia,
thai baht,
foreign capital,
fixed exchange,
current account deficit,
east asian economies,
rate foreign investment,
foreign currency reserves,
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