Account of the asian financial crisis
At this stage, the IMF intervened to try and stabilise the crisis. In the mids, a series of external shocks began to change the economic environment.
Current account deficits. Critics, however, noted the contractionary nature of these policies, arguing that in a recessionthe traditional Keynesian response was to increase government spending, prop up major companies, and lower interest rates.
Though the crisis is generally characterized as a financial crisis or economic crisis, what happened in and can also be seen as a crisis of governance at all major levels of politics: national, global, and regional.
These pressures came to a head in as one after another they abandoned their pegs and devalued their currencies. The Asian crisis led to some much-needed financial and government reforms in countries such as Thailand, South Korea, Japan, and Indonesia.
In turn, they had to follow strict conditions including higher taxes and interest rates, and a drop in public spending.
1998 financial crisis
By , many of the countries the crisis affected showed signs of recovery and resumed gross domestic product GDP growth. Echoing these concerns were those who saw the crisis as a function of systemic factors. Proponents of neoliberalism , who saw the crisis as homegrown, were quick to blame interventionist state practices, national governance arrangements, and crony capitalism for the crisis. The SAPs called on crisis-struck nations to reduce government spending and deficits, allow insolvent banks and financial institutions to fail, and aggressively raise interest rates. The Asian financial crisis, also called the "Asian Contagion," was a sequence of currency devaluations and other events that began in the summer of and spread through many Asian markets. In at least one of the affected countries the restrictions on foreign ownership were greatly reduced. Development money went in a largely uncontrolled manner to certain people only - not necessarily the best suited or most efficient, but those closest to the centers of power. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic bank run prompted by a sudden risk shock. Typically countries experienced rapid devaluation and capital outflows as investor confidence turned from over-exuberance to contagious pessimism as the structural imbalances in the economy became more apparent. In addition, the level of organization necessary to coordinate a massive exodus of investors from Southeast Asian currencies in order to manipulate their values rendered this possibility remote. It began as a currency crisis when Bangkok unpegged the Thai baht from the U. Some economists have advanced the growing exports of China as a factor contributing to ASEAN nations' export growth slowdown, though these economists maintain the main cause of their crises was excessive real estate speculation. The effects of the SAPs were mixed and their impact controversial.
In the first six months, the value of the Indonesian rupiah was down by 80 percent, the Thai baht by more than 50 percent, the South Korean won by nearly 50 percent, and the Malaysian ringgit by 45 percent. Above all, it was stipulated that IMF-funded capital had to be administered rationally in the future, with no favored parties receiving funds by preference.
Fiscal austerity measures were criticized as especially inappropriate for the East Asian case and for prolonging and intensifying both economic and political crises. In addition to the criticism leveled at the technical merits of IMF policies, the politics of the IMF and the general lack of transparency of its decision making were also challenged.
based on 86 review