In the modern history of economic upheavals, the East Asian financial crisis that began in with the fall of the Thai baht surprised economists in two ways: first, for the massive damage it inflicted upon Indonesia, Korea, Thailand, Malaysia, and the Philippines, and, second, for how quickly these countries bounced back from the battering. The main reason the crisis erupted with such severity, Park and Lee argue, is that East Asian countries had "too much short-term capital flowing into weak and under-supervised financial systems," and thus set themselves up for a sudden and sharp upheaval that was "in large measure a liquidity crisis caused by investor panic. Park and Lee observe that an analysis of other countries that have undergone currency crises shows a pattern in which an initial drop in growth is followed by a return, after about three years, to "pre-crisis or non-crisis growth rates.
The Asian financial crisis, like many other financial crises before and after it, began with a series of asset bubbles. Growth in the region's export economies led to high levels of foreign direct investmentwhich in turn led to soaring real estate values, bolder corporate spending, and even large public infrastructure projects. Heavy borrowing from banks provided most of the funding. Ready investors and easy lending often lead to reduced investment quality, and excess capacity soon began to show in these economies.
Login or Register Information of interest. Introduction The economic record of East Asia over the past three decades is impressive by any measure. As a result of policies favoring outward-oriented growth, high savings and investment, and sound fiscal positions, per capita incomes in the region are, on average, 10 times higher than 30 years ago.
When the Asian financial crisis broke in mid, the expectation was that Indonesia would weather the crisis with minimal damage. Actual events soon proved these expectations widely wrong and the Indonesian economy was more severely affected than other Asian countries. In part this outcome reflected Indonesia's fundamental institutional weakness that had been overlooked in the euphoria that marked international financial markets during the s, and in part the impact of the financial crisis was magnified by inconsistent internal policies and by an overly ambitious IMF program that tried to achieve too much in to short a period of time.
But when Thailand devalued its currency a decade ago, on July 2, — causing a financial crisis that engulfed nearly the entire region — Mr. Today, he has recovered somewhat, but he controls only the cement division and has not built a new factory in the last 10 years. His experience speaks volumes about what has happened here since the Asian financial crisis, which raised alarms around the world and was probably the most damaging detour along the road to economic globalization of the post-cold war era.
The three major economies in Northeast Asia have not escaped damage from the Atlantic-centered financial crisis and Great Recession. Japan has suffered the most in terms of employment and economic growth, which is ironic because it is less open to trade and investment than either Korea or China. China seems to be handling the crisis best, but appearances would be deceiving if nascent asset bubbles and the credit boom are not arrested.
What led to its recovery? I believe that there were two major factors. The first was the financial restructuring process that promoted the disposal of NPLs and strengthened banks.
Over the past five years, product and property prices, rents and wages have all been adjusted downwards. Both the investors and the government have been taken by surprise. Many who bought properties at high prices are now suffering heavy capital losses. The government is facing decreasing revenues through a slowing-down of economic activities and has been suffering heavy budget deficits.