Discussion based on the east asia crisis - Assignment Example

The East Asia Crisis. How IMF Policies Brought the World to the Verge of a Global Meltdown. The east Africa crises startedon July 2nd, 1997, when the Thai baht promptly depreciated. This abrupt hit to the currency market impacted negatively not only Thailand, but its effects were also felt in other regions of the east Asia- Indonesia, Malaysia, Hong Kong, South Korea, Singapore, Philippines and spilled over into Brazil, Russia and even the United States (Stiglitz 89-99).East Asia had experienced phenomenal growth before the crisis that refers to as the east Africa miracle.

There was decreased in poverty, stable government that provided funds to facilitate education and moreover, had strong industrial policies (Stiglitz 89-99).The international monetary fund (IMF) and world bank had not surveyed the abundant achievements of the area. According to Stilgitz, this may have resulted due to the East Asia rejections to follow western policies such as the Washington consensus so as to attain success (Stiglitz 89-99).Stiglitz discusses two patterns. The devaluation of the nation’s currency which occurred frequently all over the area.

If a merchant believes a currency will devaluate they sell their stocks of that money, this leads currency to devalue since the supply of money rises while demand does not. The government also spends its foreign currency reserves to pile up its own currency until it gets exhausted of the reserves, either way the currency falls in value. This case was mainly in Thailand(Stiglitz 99-111).The second pattern was realized after the end of the Korean War. The country reformed its economy by tightly controlling its financial markets.

After much pressure from the United States it reluctantly allowed its firm to borrow from aboard, this borrowing from the abroad exposed themselves to the vagaries of the international market. The Withdrawal of the World Bank from lending it caused its downfall in the economy (Stiglitz 99-111).IMF had a role of lending the money to the East Asia countries. But it did it at a higher interest rate, cutbacks in government spending and increase in taxes. Other additional conditions a county was mandated to make increase in openness and transparency and improve in the financial market as well as minor reforms such as abolition of the clove monopoly in Indonesia.

Moreover, the idea of the capital account liberation without evidence that such policies promote growth was the one of most important factor to the cause of the crisis. This made the developing nations subject to both rational and irrational whims of the investor community.The Beggar-thyself policies was one of the causes for the great depression. The policy prevented country interactions, that is each country to cut back on exports and shifting the consumer demand to its own products (Stiglitz 114-128).

To conclude, IMF became part of the countries’ problem rather than part of the solution. Though, IMF said will restore market confidence in the affected countries, but precisely countries in deep depression did not inspire confidence in IMF (Stiglitz 124-125).Works CitedStiglitz, Joseph E. Globalization and its discontents. New York: W.W. Norton, 2002. Print.pp ( 89-132)