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The Asian Economy Crisis Synopsis 1997 is a year of disaster to those Asian countries and the whole world as well. Thailand, Indonesia, Korea and Malaysia experienced the giant currency and financial crises during that year, other surrounding countries: Hong Kong, Taiwan, Singapore, Philippines etc, also more or less suffered in the crisis. All the currencies in those countries are depreciated; Thai couldnˇ¦t believe that during that year, their money on hand only worth half or even less than the value as before. World Bank and other countries are trying to help those suffered country with billions of US dollars, however, the problem exists for a long time, which probably could trace back to 1990, and it is not easy to get recovered. In this essay, start with the discussing of the cause of the Asian crisis, which is the moral hazard behaviour bring the Asian countries into current account imbalance. This will be in the section one. Following in the second section discuss the recovery of Asian economy and the role IMF acting in the crisis as well as the action it took to help suffered countries as well as the future principles. And the last section argued which exchange rate regime Asian countries should choose, in this section, the study focused on the advantage and disadvantage of each regime. Evaluate the causes of the Asian economy crisis. What causes Asian economy crisis? The current account imbalances and the macroeconomic fundamentals deterioration in the region over 1990s probably are the biggest problem to ignite the Asian crisis. From the table below, it is observed that the countries currencies collapsed in 1997 had experienced somewhat sizable current account deficits in 1990s: Korea, Indonesia, Malaysia, Philippines, and Thailand respectively had -1.24, -4.40, -2.27, -6.30 and -8.74 deficits. Most of these countries had deficits over decay; some even had more than 10% of deficit in a particular year, so when the crisis suddenly erupt, the fragile financial system couldnˇ¦t sustain any attack anymore. Compare to those regions such as China, Taiwan, and Hong Kong with surplus or less deficit in current account over the years, they only had little depreciation on their currencies, while those high deficit countries Thailand, Malaysia, Philippines, Korea and Indonesia reached 78%, 52%, 52%, 107% and 151% respectively. The current account imbalances in these countries are assessed within a broad overview of structural factors: current account deficits and foreign indebtedness, growth and inflation rates, savings and investment ratios, budget deficits, real exchange rates, foreign reserves, corporate sector investment, measures of debt and profitability, indexes of excessive bank lending, indicator of credit growth and financial fragility, monetary stances, debt-service ratios, dynamics and composition of capital inflows and out flows, and political instability. But, what cause those countries plunged into these situation? The Moral Hazard behaviour probably is the main reason. The moral hazard problem arise when the financial intermediaries whose liabilities are guaranteed by the government. In Asia, this problem magnified the financial vulnerability of the region during the process of financial market liberalization in the 1990s, exposing its fragility vis-à-vis the macroeconomic and financial shocks that occurred in the period 1995-1997. The problem exhibited three different levels: corporate, financial and international. At the corporate level, follow by the long tradition, private projects are guaranteed by the government as political pressures to maintain high rates of economic growth.
Approximate Word count = 2180
Approximate Pages = 8.7
(250 words per page double spaced)
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