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Asian Financial Crises 1997 - Essay Example

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Asia is a happening place as far as spread of globalization is concerned. It's a huge market with countries like China, India, Malaysia, Thailand etc. In fact the Asia Pacific region comprises of 46 countries, but the number of big economies is less. It's been ten years since some of the Asian economies suffered badly on account of currency and banking crisis…
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Asian Financial Crises 1997
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Download file to see previous pages Some of the worst suffering economies like Indonesia, Malaysia, Singapore, and Thailand were the one's that were successfully integrated into the world economy at that time. Therefore, a shift started taking place in economist's opinion on 'globalization' (Piasecki & Wolnicki, 2004). Globalization started in this region by early 1990s and by the mid-1990s, the success appeared to have entered deep into the economies. Openness through 'globalization' and 'regional integration' came to be known as the factors affecting development and economy. But suddenly there were indications from Japan that in order to defend the yen, it might raise the interest rates. The statement itself to this effect set off a chain reaction amongst the foreign investors in the South-East Asian region. They started offloading the local currencies, 'before it was too late'. USA, had a big stake in this region, therefore US also joined Japan in the campaign to save Yen from falling further and started buying yen to stop the precipitous fall (Sanger, 1998). But the Yen kept falling with even some Japanese investors preferring to convert their Yen into other currencies because of liberalized financial rules. Subsequently, there were two rounds of currency depreciation. Thai baht, Malaysian ringgit, Philippine peso, and Indonesian rupiah felt the heat in the first round while the Taiwanese dollar, South Korean won, Singaporean dollar, and Hong Kong dollar were devalued in the second round. The respective governments tried to pump in all their foreign currency reserves into the local market in order to save their own currencies, but to no avail. The stock markets kept hitting rock bottom. South-east Asian nations then tried to raise interest rates, which, in turn, slowed down the economic growth. This crises was being termed as Asia's second biggest event1 since World War II, resulting in seriously affecting the domestic social, political, and economic environment with equally damaging impact on intra- and extra-regional international relations
The banking system was the worst affected, for example at that most of the 240 Indonesian banks turned insolvent, while some other well-run banks like Bali were trapped in bad debt (Landler, 1998). Banks were the worst affected with the crisis. With the excess of local currency in the local markets its value was bound to head southwards. And that's exactly what happened. Stock market too went in a bearish mode and stock prices started tumbling down. Nanto (1998) points out that the reasons which brought about this crisis included four basic problems or issues:
i. A shortage of foreign exchange that caused the value of currencies and equities in Thailand, Indonesia, South Korea and other Asian countries to fall dramatically
ii. Inadequately developed financial sectors and mechanisms for allocating capital in the troubled Asian economies,
iii. Effects of the crisis on both the United States and the world, and
iv. The role, operations, and replenishment of funds of the International Monetary Fund.
On the other hand the Secretary General of UNCTAD, states (Piaseck & Wolnicki, 2004) that the two main causes of the South East Asian crises were:
i. Excessive openness to the world economy, and
ii. Inability to manage this openness, on ...Download file to see next pagesRead More
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