Asian Financial Crisis Essay -- business economics

In the summer of 1997, an economic and currency crisis rocked the Asian markets. whiz by one, south-east Asian countries such as Thailand, Indonesia, Korea and Japan saw their economies crash in the wake of heavy contrasted investment. An economic boom had do the region an attractive investment opportunity for much of the 1990s. By 1997, however, domestic production and development had stalled, and foreign investors grew nervous. A divestment run on the Thai tical triggered the crash. Large corporations, extremely dependent upon the confidence of foreign investors failed to meet debt obligations and began to fail throughout Southeast Asia. Currencies throughout the region faltered and nosedived from their mid-1990s positions of stability. The causes of the Asian economic crisis are varied. on the loose(p) oversight of corporations had ramifications in economic downturns that were not a concern in the mid-90s boom. Macroeconomic policies of the southeast Asian countries made the ir economies vulnerable to the uncertain confidence of their foreign investors. Despite this, Corsetti, Pesenti and Roubini (1998) make the point that, ?market overreaction and herding caused the plunge of exchange rates, asset prices and economic activity to be more severe than warranted by the initial faded economic conditions.? Much of the crisis that began in 1997 has roots that go back further to the area?s economic growth that started in the early 1990s. Although many economists rate the Asian economic collapse to have begun in Thailand, conditions throughout the region meant that other countries? economies were destabilized to the extent that they quickly followed Thailand.Throughout the early 1990s, growth in Southeast Asia attracted much foreign capital. However, by 1995 and 1996, Thailand?s current depict deficit had grown (from 5.7% in ?93 to 8.5% in ?96 Pesenti et al., 1998). When domestic production slowed, this account imbalance represented an even greater percentag e, when compared to GDP. Much of the instability in Thailand?s economy was brought about by heavy short-term borrowing that necessary stringent debt maintenance. A boom in real estate and the Thai stock market attracted foreign speculation that could not be sustained in the face of investor doubts. The Thai government attempted to shore up shaky investor confidence by officially backing the financial in... ...r 1997 are from the Economist intelligence information Unit Country Report, 2nd quarter 1998.Table 2. Non-Performing Loans (as proportion of total lending in 1996)Korea 8% Thailand 13%Indonesia 13% Hong Kong 3%Malaysia 10% china 14%Philippines 14% Taiwan 4%Singapore 4%Source 1997 BIS Annual Report Jardine Fleming.Table 3. Debt Service plus Short-Term Debt, World assert Data (% of foreign reserves ).1990 199119921993 1994 1995 1996Korea 127.4 125.9 110.4 105.7 84.9 204.9 243.3Indonesia 282.9 278.8 292.0 284.8 278.0 309.2294.2Malaysia 64.045.9 45.6 42.4 48.7 55.9 69.3Philipp ines 867.6 257.0 217.1 212.6 172.0 166.6 137.1Thailand 102.4 99.3 101.3 120.3 126.6 138.1 122.6Hong Kong 30.5 26.9 22.8 20.6 22.0 16.8China 55.3 43.7 108.6 113.7 54.1 49.6 38.5Taiwan 23.9 22.3 23.1 25.2 23.7 24.2