Question: Evaluate (Find) the causes of the East Asian Financial Crisis in 1997-1998 I will be talking about the causes of the Asian crisis involving the problems or issues they are undertaking during the time. (Ask audience, if anyone knows how it actually happened. ) Here is what I understand how the crisis has began. Firstly, the ones affected the most were Thailand, Indonesia, South Korea, Philippines, Malaysia and so on, did not have enough foreign investment causing the value of its currencies fall tremendously. Secondly, financial sectors with each country were operating very insufficiently and creating trouble in its Asian Economies.
Thirdly, the crisis effects the US and the whole world. Resulting, the role of MIFF have to attempt and investigate ways to cure the crisis. (Slide 2) Asian financial crisis happened in 1997. It first began attacked the Thailand currency, baht on May 14th and then follow by the collapse of the largest finance company in Thailand on 23rd of May. Due to the fact it has happened, the poor baht currency in Thailand has lost its currency relation with the US dollars and in fact, it has also affect other countries like Philippines peso, Malaysian ringing and Indonesia ripping
All these countries had to devalue their currencies by more than 30 percent towards the end of January 1998 in order to defend themselves. (Slide 3) This was only the first round of depreciation. The second round pressures Taiwan NT dollars, South Korean won, Brazilian real, Singapore dollar and Honking dollar. (Slide 4) The causes of Asian Financial Crisis (Slide 6) Different countries depends on different economies to see the cause of financial problems.
For the past decades, known that the Asian Tiger or Asian Dragons economies has grown 5% to 10% having their economies opened to US financial arrest in order to take up their exports and attract foreign investments to ease capital flows. Keeping the exchange rates tight with the US dollar or the dominated dollars. From the newly industrialized economies and liberalized capital markets, banks could borrow internationally with low rates of interests and then lend them out domestically to make profits. Over the decades foreign borrowings has slowly change to government private sector borrowings.
The governments borrows from the world bank or international banks and local banks might borrow from the centre banks in New York. From the trading between banks, it has caused the financial crisis in currency markets in Asia. However, the exchange rate volatility was mainly caused by the banking sector of the countries. Here are some other factors that caused the Asian financial crisis: Domestic banks with foreign borrowings has rose its debt to GAP ratios from 100% to 167% in the four large SEAN in 1993-1996.
The main three countries (Thailand, Indonesia, South Korea) that was most affected by the financial Political Economics By metrical of current account deficits, however, because of this, it shows a higher interest rates in the East. Talk about picture, compare with US) (Slide 8) There are more loans in order to create asset bubbles (instant rise in price and drop immediately) when there are financial deregulation. Economic boom and property boom both leads to expensive borrowings by companies.
In sass, the US tried to decrease inflation and realized that increasing interest rates could reduce its inflation to the minimum, however, this has caused the East Asian currencies to fall and governments struggles to keep up with the exchange rates against the US dollar. The devaluation of Thailand Baht triggered a huge loss throughout the Asian economies and sooner or later other countries were forced to devalue their currencies as investors want to leave the Asian currencies. Countries of dollar devalue a lot creating the fact that it became even harder to repay off the debt even so, some countries began to default.
MIFF tried to intervene and try to cure the crisis. However, arguments were created and it got worsened. MIFF continued with injecting the fiscal policy where they increase taxation and prevarication and lower spending. This has made the economy worse and led the economy into recession even bankruptcies increased in the countries. (Slide 9 conclusion) There are so many various problems or issues that caused the meltdown of the Asian financial crisis, however, mainly the immediate causes of the Asian financial meltdown sums up with three problems.
Firstly, Japan and Europe struggles to recover from the recession due to poor export demands where people over-produced the capacity of products for sell and did not have enough consumers. Secondly, the Asian currencies were in relation to the exchange rates of the US dollar. Causing the Japanese Yen became weaker due to a 50% appreciation with the US dollar in April 1995 to June 1997. Equally, the depreciation of the US dollar leads to the Asian entries of a export boom in the economies.