Welcome to Scribd. Sign in or start your free trial to enjoy unlimited e-books, audiobooks & documents.Find out more
Download
Standard view
Full view
of .
Look up keyword
Like this
3Activity
0 of .
Results for:
No results containing your search query
P. 1
International Economics Report - Asian Financial Crisis

International Economics Report - Asian Financial Crisis

Ratings:

4.74

(1)
|Views: 676|Likes:
Published by Pauline Ng
A final report I did for my International Economics class last year on the Asian Financial Crisis.
A final report I did for my International Economics class last year on the Asian Financial Crisis.

More info:

Categories:Types, Research
Published by: Pauline Ng on Oct 29, 2008
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF or read online from Scribd
See more
See less

06/07/2010

 
1 
ECONS 103
International Economics A Individual Report on Asian Financial CrisisPrepared For: Prof Leung Hing ManPrepared By : Pauline Ng Wan Ching
International Economics ReportPauline Ng
 
2
The Asian Financial Crisis erupted on the 2
nd
July 1997, and we are not sure whether ornot it caught investors by surprise. But it definitely caught the government off guard, orat least they seem to be praying that it would not happen when it happened.It was a financial world crisis which was so severely transferred into a real worldcatastrophe when it struck. Suicide rates rose dramatically throughout the region, causedmillions of people to end up jobless
1
, bankrupted the regions’ riches, sent long reigningleaders of countries to their downfall and created major political upheaval in countriesthat were once considered the Economic Miracles
2
.The severity of the situation would never be effectively justified in a thousand essays puttogether. And many economists have presented diverse views regarding what had really caused this financial/economic disaster of the decade. What was it that triggered andcaused the contagion effect
3
 which crumbled the countries in the region, causing aninitial US$93 Billion of inflow to become a US$12 Billionoutflow?
4
In this part of theessay, I shall present some causes that were strongly argued by academics.It has been widely debated amongst economistsand academics such as Paul Krugman asto whether or not the boom of the Asian economies has been a real miracle or myth
5
.During and after the crisis, political leaders started pointing fingers at the possible causes and triggers. Listing a few, George Soros
6
 was accused by leaders from 10 ASEANcountries to have been one of the investors who was “manipulating the currency market” by shorting the Thai Baht, Indonesian Rupiah and other Asian currencies. It had led usto consider whether or not it triggered the Herd Instinct
7
and ev entually caused thedepreciation of Asian currencies by up to 8 folds, for example, the Rupiah depreciatedfrom 2000 to 18000 to 1 USD
8
in the span of a few months.
International Economics ReportPauline Ng
1
Appendix A – Unemployment Rate Count
2
Appendix B – Trend of Per Capita GDP
3
 http://www.sf.frb.org/econrsrch/workingp/ p bc/wppb98-06.pdf  Appendix C – Map Overview
4
http://www.imf.org/external/pubs/ft/fandd/1998/06/imfstaff.htm
5
http://www.asiasociety.org/publications/epg.html
6
http://www.pbs.org/wgbh/pages/frontline/shows/crash/etc/cron.html
7
This term is used in the investing world to refer to the forces that cause unsubstantiated rallies or sell-offs.
8
http://en.wikipedia.org/wiki/Asian_financial_crisis
 
3
The reason that was arguably true to a large extent, which I personally believe in, is thatthe economy has been fundamentally wea
9
, especially in its financial sector and banloan system. Most of the countries such as Thailand, Indonesia and South Korea hasextremely lax prudential rules and were financially over sighted as the financialintermediaries have risky lending practices. Poor quality of supervision andenforcements of the regulation was considered almost non-existent. Many of the loans were made and approved based on “Relationship Lending”
10
, where lending decisions were not based “on sound information about the fundamental economic value of specificinvestment projects” but “on personal, business or governmental connections”.This leads us to looking at the effects of Crony Capitalism
11
and the unveiling to widespread corruption which was rampant in these affected countries. For example, theChaebols (Big Korean Conglomerates) usually has the financial “backing” of thegovernment, although having debt to equity ratios of 4 to 1 and total earnings at only 1.3times their debt service
12
. Foreign branches of Korean banks were able to build up hugeliabilities before the crisis, partly because foreign creditors correctly perceived that if their parent banks found themselves in financial difficulty—as they did after the onset of the crisis—they would receive assistance from the Korean government.Therefore when the crisis struck, and when the banks and government needed theliquidity, their inability to retrieve these debts resulted in the inability to manage theircurrencies. In addition, there was interdependence amongst the Asian Economies forexample, with the Indonesian banks borrowing heavily from Korean and Japanese banks, and these bank s were unable to retrieve these debts as Indonesia was in direstraits itself. Another weak fundamental worth mentioning would be the pegging of the countriesexchange rates against the USD, which made it vulnerable especially when investors &Fund Managers started selling short which leads to excessive suppl y of Asian Currency in Forex Market and forces devaluation pressure. The government did not un-peg thecurrencies immediately when it started happening as they fear that this enormous rapidselling of their currency in the Forex market would result in a sharp plunge, creatingfurther panic and selling.
International Economics ReportPauline Ng
9
http://www.cato.org/pubs/journal/cj18n3/cj18n3-9.pdf 
10
http://www.digitalnpq.org/articles/economic/157/02-27-2007/janet_l._yellen
11
http://en.wikipedia.org/wiki/Crony_capitalism
12
http://www.koreatimes.co.kr/www/news/biz/2007/11/128_9349.html

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->