The Origin Of Asian Crisis Essay Research

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The Origin Of Asian Crisis Essay, Research Paper PART 1 THE ORIGIN OF ASIAN CRISIS Which nations and regions are involved in the Asian Crisis? The nations and regions involved in the Asia Crisis are Thailand, Malaysia, Philippines, Singapore, South Korea, Japan, Hong Kong and Tai Wan. The maps are shown on appendix. What happened in the Asian crisis? 1. Summary of the crisis The Asian crisis happened in 1997. The year of 1997 was supposed to have been a year of celebration for Southeast Asia-30 years of glorious economic boom. Instead, it went wrong. The crisis erupted in Thailand in the summer of 1997. Starting in 1996, a confluence of domestic and external shocks revealed weaknesses in the Thai economy that until then had been masked by the rapid pace of economic growth and

the weakness of the U.S. dollar to which the Thai currency, the baht, was pegged. To an extent, Thailand’s difficulties resulted from its earlier economic success. Strong growth, averaging almost 10 percent per year from 1987- 95 and generally prudent macroeconomic management, as seen in continuous public sector fiscal surpluses over the same period, had attracted large capital inflows, much of them short-term and many of them attracted by the establishment of the Bangkok International Banking Facility in 1993. And while these inflows had permitted faster growth, they had also allowed domestic banks to expand lending rapidly, fueling imprudent investments and unrealistic increases in asset prices. Past success also may have contributed to a sense of denial among the Thai

authorities about the severity of Thailand’s problems and the need for policy action, which neither the IMP in its continuous dialogue with the Thais during the 18 months prior to the floating of the baht in July 1997, nor increasing exchange market pressure, could overcome. Finally, in the absence of convincing policy action, and after a desperate defense of the currency by the central bank, the crisis broke. 2. Chronology of the crisis + The first phase In July, on July 2, the Bank of Thailand announces a managed float of the baht and calls on the International Monetary Fund for ‘technical assistance.’ The announcement effectively devalues the baht by about 15–20 percent. This is a trigger for the East Asian crisis. It also caused panic in several neighboring countries.

For an export- dependent Asia, as many countries in the region compete in similar products and regional markets (US, Europe and Japan), while the currency of Thailand start to depreciate, contagion to other economies in the region appeared relentless. And the speculators grew confident following their success at bringing down the baht and looked for more targets. Under intensive pressure, the region’s currencies snapped one by one. On July 9, Philippine president Fidel Ramos ruled the value of the peso. Two days later, he gave in. The Philippine central bank says in a statement that it will allow the peso to move in a wider range against the dollar. The same day, in Indonesia the rupiah is starting to be affected, Jakarta widened the rupiag’s trading bands. Three days later,

it was Malaysia’s turn, with Malaysian central bank giving up its expensive defense of the ringgit and letting market pressure take hold. On July 17, the Singapore monetary authority allows the depreciation of the Singapore dollar. It falls to lowest level since February 1995. Then on July 21, Indonesia abandoned its crawling peg altogether. On July 24, Currency meltdown sweeps Asia. Within days, Malaysian Prime Minister Mahathir Mohamad accuses American trader George Soros of causing the Malaysian ringgit’s fall. Soros denied the charge. In August, on August 5, the Thailand unveils austerity plan and complete revamp of finance sector as part of IMF suggested policies for a rescue package. Central bank suspends 48 finance firms. On August 11, the IMF unveils in Tokyo a rescue