Asian Financial Crisis Essay Research Paper The — страница 2

in the West as the possible successor to a highly individualistic American model that was having trouble producing the extraordinary gains in efficiency seen in the region. This “economic miracle” that had been producing phenomenal gains in GDP growth since the sixties was suddenly insolvent. Two explanations for this exist. First, in can be interpreted that these economies were structurally deficient in their financial structure, particularly in corporation’s high debt-to-equity ratio, was a cause of bank insolvency once currency valuations fell too low. Secondly, it could be interpreted that these vast financial transactions can affect the health of any economy and that Asia was simply the victim du jour. While some factors were certainly more important in some of the

Asian countries then in others (e.g. loans on inflated land values was not a significant issue in South Korea), commonalties could be seen across the region. In early February of 1998, an analyst for the Far Eastern Economic Review summed up what had at the time become the general consensus on these commonalties: In country after country the story was remarkably similar. Corruption and crony capitalism had weakened solid economies built on years of hard work and prudent investment. Lax, outdated banking rules had left nations unprepared to handle a flood of foreign funds. In short, a potent mix of globalization, poor governance and greed brought about the crisis that now engulfs the region (Chanda 46). By early 1998 it had become fashionable to ascribe the Asian crisis to crony

capitalism and weak banking systems (Wood S2). More cautious analysts, however, while acknowledging the contributions of too cozy business-government relations as casual factors in the crisis, began to tone down the emphasis on the “crony capitalism” argument. After all, what was now being maligned as “crony capitalism” was once shown as devotion to Asian “alliance capitalism” (Wade 20). In the shift away from the focus on “crony capitalism” and a stereotyped model of Asian economic development, it became to consider the cause of the crisis in terms of broad domestic and international financial interactions. For example, a former US Federal Reserve Board chairman Paul Vocker argued that the crises was caused by a combination of volatile capital flows and huge

shifts in the dollar-yen exchange rate during 1996 and early 1997 (Wood S2). While Western analysts had initially reacted with anger at Dr. Mahathir’s accusation that the Asian financial crisis was the outcome of a foreign investor, most well-considered research of the causes of the Asian crisis now acknowledge that the behavior of Western investors was a contributing factor, if not a direct initiation of the crisis. Although the initial impact of currency devaluations was large, it could have been contained had it not been for dynamic escalating dynamics, such as herd behavior, boom-to-bust panic activities, and self-fulfilling prophesies that precipitated the crisis (Ungson 323). While analysts have not abandoned the well-grounded charge that the Asian banks participated in

disastrous lending practices often under the protective shield of their governments, they also criticized the lending practices of foreign banks (Nayan, Stiglitz, Wade). Foreign banks frequently lent blindly, with little or no due diligence. Foreign investors were providing funds to Asian firms with debt ratios and long-term alliance relationship that would have been unacceptable in the West. When the crisis hit, the violence of the outflow owed much to the realization that much of the capital should not have been committed in the first place, according to western prudential standards (Wade 20). Each of these causes had consequences. The most immediate and obvious consequence of the Asian financial crisis was that the Asian economies plunged into a deep recession. After decades

of economic growth, real GDP growth turned negative. The impact of the crisis has been evident across every macroeconomic and fiscal policy-unemployment rates soared, interest rates soared, inflation rates soared, devalued currencies, collapsing stock markets, investment dried up, reductions in public spending, etc. Moreover, while analysts had at first been optimistic about the idea that the Asian economies would bounce back from the crisis, by mid-1998, most analysts, with officials at the IMF, were admitting that the crisis was worse then they expected (Lee 4). What was disappointing was the magnitude of the crisis. Early on, it seemed it would hurt to suggest that the currency crisis in Thailand would spread like a disease throughout Southeast Asia or north to South Korea.