Essay on Asian Crisis 1997

4119 Words Jun 10th, 2012 17 Pages
| Asian Crisis of 1997 | | | Prepared by:Azra Becirovic and Sanela Bilalic | |

April 21, 2012 |

Long before Asian financial crisis has started, South Korea, Thailand, Indonesia, and Malaysia had an increasing economic performance; economy was fast growing, saving rates were high, and inflation low. Turning point in Asian economy was 2 July 1997, the day when Thai Baht fell around 20 % against the $US. “It all began in Thailand’ summarizes the conventional explanation of the early stages of the crisis.” (Hill, p.3) How it all began, what factors caused the crisis, what segments were affected the most, what was the backup plan, and what policies should have been taken to prevent the crisis are the points that this paper
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According to Dollar and Hallward-Driemeier survey results, macro-economic shocks played an important but not the core role in causing corporate sector distress and weaker operational performance. What is more significant is that the relatively high rates of return may be improper compensation for the risk-taking degree by East Asian corporations. Harvey and Roper (1999) explained that using rates of return on stocks, while capital markets in the region mobilized substantial amounts of new funds and enhanced liquidity, shares of East Asian companies earned returns in the 1990s that were below those generated in equity markets in other countries, especially in developed countries, when adjusted for risk. “This suggests that rates of return of East Asian corporations were not commensurate to the risk being undertaken.” (World Bank researcher, pg 11) Asian countries strongly believed that their triumphal economic performance could not lead to the large fiscal deficits, public debt burden, and structural obstacles that challenged the Latin America economy. According to first-generation model, as a result of weakening macroeconomic fundamentals, Latin America economies underwent gradual collapse of fixed exchange rate regimes incurring great levels of foreign debt in 1970s. However, in addition to Krugman, this

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