Asian Crisis Essay

687 Words Mar 25th, 2014 3 Pages
Asian Crisis
• What happened and when did it happen?
Asian Crisis that hit pacific Asian in middle 1997, it liked a big earthquake suddenly hit Southern Asia. In Thailand, the July 2, 1997 when it currency had to devalue, the baht, about 20% against the US dollar, as a result of intense pressure in the foreign exchange market. Not only currency speculators but also many Thai residents were trying to sell the baht and buy the US dollar, causing and worsening capital flight out of the country, as the Thai government was running out of its foreign reserves and losing market confidence in maintaining the currency value and financial stability. The interest rates were shot up, as the outflow of short-term capital intensified. Then, the
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Second, there are some financial factors. Many of the Asian countries have been trying to attract short-term capital money from abroad to finance growing credit demand at home. This is the main reason why the governments were so reluctant to devalue their currencies for the benefit of foreign investors. As a result, their financial system as a whole became so vulnerable.
Third, there are macroeconomic, fundamental factors. With overly ambitious development targets pursued by the governments, many of the Asian economies were overheating with high inflation rates and large trade deficits, contributing to heavy external borrowing and currency overvaluation.
Fourth, there are political and structural factors. In Asia, many of the political leaders became de-facto dictators, based on their antiquated political systems with special privileges for their inner circle and widespread corruption in key government sectors.
Finally, one might add the IMF factor. While the IMF has extended its assistance in an attempt to help ease the Asian crisis and to restore some confidence in the markets, there is much criticism of the IMF's remedies for the crisis. Especially, many government officials in Asia along with some Western economists are critical of the restrictive rules and conditions attached to the IMF's aid packages; tight fiscal and monetary policies, together with structural reforms,

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