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East Asian Crisis Essay

1015 words - 5 pages

East Asian Crisis
Financial crisis is a situation in which some financial institutions or assets suddenly lose a large part of their value. East Asian crisis was a series of currency devaluations and other events that spread through many East Asian countries beginning in the summer of 1997. The countries majorly affected by this were: 1. 2. 3. 4. 5. 6. South Korea Japan Thailand Indonesia Malaysia Philippines

The countries at the center of the recent crisis were for years admired as some of the most successful emerging market economies, owing to their rapid growth and the striking gains in their populations' living standards. With their generally prudent fiscal policies and high rates of ...view middle of the document...

S. dollar, wide swings in the dollar/yen exchange rate contributed to the buildup in the crisis through shifts in international competitiveness that proved to be unsustainable International investors—mainly commercial and investment banks—many, in some cases, have contributed, along with domestic investors and residents seeking to hedge their foreign currency exposures, to the downward pressure on currencies The IMF provided $36 billion3 to support reform programs in the three worst-hit countries—Indonesia, Korea, and Thailand. The IMF gave this financial support as part of international support packages totaling almost $100 billion. In these three countries, unfortunately, the authorities' initial hesitation in introducing reforms and in taking other measures to restore confidence led to a worsening of the crisis by causing declines in currency and stock markets that were greater than a reasonable assessment of economic fundamentals might have justified. This overshooting in financial markets worsened the panic and added to difficulties in both the corporate and financial sectors. In particular, the domestic currency value of foreign debt rose sharply. Effects on certain countries: Indonesia    Drastic devaluation of ‘Rupiah’ from 2000 to 18000 for US$1 Sharp price increase Widespread rioting

South Korea    Drastic devaluation of ‘Won’ from 1000 to 1700 for US$1 National debt to GDP ratio more than doubled Major setback in automobile industry

Philippines   Growth dropped to zero in 1998 Peso fell significantly from 26/US$ to 55/US$

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IMF’s role in Asian financial crisis by Walden Bello

Japan    Major impact on exports to Asia GDP growth rate slowed from 5% to 1.6% Numerous companies went...

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