THE EAST ASIA CRISIS

How IMF Policies Brought the World to the Verge of a Global

Meltdown
 On July 2, 1997, the Thai Baht collapsed
 Thailand had to face financial crisis as its currency lost its value.
 As the speculators sold the currency, the value of baht fell by 25%
 For many years the Thai government maintained their control over the country’s
economy.
 Thailand was considered a part of “The East Asian Miracle” after their impressive
economic growth
 The Thai government was later pressurized by the IMF to lift their restrictions from their
financial sector and their capital market.
 This decision resulted in a lot of hot money coming in the market –and flowing out
 Since Thailand was the key trading partner with other East Asian countries, the disease
caused from the collapse of baht spread throughout the region and eventually to other
part of the world.
 Later that year a baseless rumor went around the Wall Street that the South Korean
businesses won’t be able to pay up their debts.
 The western banks were concerned about this issue, and they refused to give
furthermore credit to South Korean firms.
 Due to this situation many Korean Firms had to file bankruptcy. Major companies went
out of business and unemployment drastically increased.
 Korea’s problem already added to the worse condition of the East Asian nations.
 The East Asian Nations needed a method of boosting their failing economies.
 When these nations turned to the world's primary crisis lender, the IMF, they were
asked to raise interest rates to limit inflation, cutt back government spending on
programs encouraging employment, further liberalization of trade and the financial
sector, and other policies.
 These policies, part of the one-size-fits-all core belief of the IMF, only made matters
worse.
 Market fundamentalism, the belief that the market is always right and government
action is always wrong, deepened the East Asian crisis.

How IMF/U.S. Treasury Policies Led to the Crisis

 Nations which were the part of the east Asian miracle were viewed as the hubs of
investment due to their impressive growth and stability
 Heads of the IMF and the U.S. Treasury decided that liberalizing these nations' financial
and capital market sectors would make Western investments even more profitable.
 They pushed for "capital account liberalization [which] was the single most important
factor leading to the crisis." But without a regulatory framework, capital market
liberalization made these nations extremely vulnerable to the whims of foreign
investors.
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