Asian Financial Crisis

Introduction

The present Asian Financial Crisis is expected to continue for next few decades for several reasons such as financial depression , recession unemployment and a deep-cut in exchange rates bringing down the regional currency value which spreads from one region to another at a fast pace causing break down of all currencies . The initial stage of Asian Financial crisis caused much currency depression to Thailand , Malaysia Indonesia , Philippines and finally to South Korea . The currency crisis began in Thailand (baht ) which spread gradually to other Asian countries causing a break down

of financial system . A great number of debates took place over the Asian Financial crisis for finding the reasons of currency crisis whether it is purely by domestic policies or by the volatility of financial system on a global perspective . A view considered by IMF and G7 is that East Asian countries are effected by domestic policies and lacking in application of economic fundamentals and no outside causes exist in currency crisis of East Asian countries The term East Asian Economic Miracle ' was first used by the World Bank in 1993 . The crashing down of Thai currency Baht has lead to financial crisis not only in Thailand , also to East Asian countries in mid 1997 . The causes are interrelated to the issues of private sector public sector and a failure of governments which considered a lenient view on warnings given about currency depreciation in Thailand in 1998 which dropped the GDP 4-5 .5 per cent , Indonesia recorded 6 .2 per cent fall in GDP , South Korea recorded 3 .8 fall in GDP , Hong Kong recorded 2 per cent fall in GDP while Malaysia recorded 1 .8 per cent fall in GDP .In to analyse what were the prominent causes for a severe effect in GDP fall of the above countries , it is required to observe and take note of international EXIM and FOREX policies that came into effect with financial liberalization between the period 1993-1998

There are two important markets that control the currency of a particular region . The first being foreign inflows which increase foreign accumulation of debts and secondly import policies that fluctuate on the inflation and control exchange and interest rates of a currency resulting in either fall in imports or rise in exports

Prior to 1997 East Asian countries finance policies were liberalized enabling inflow of foreign funds into the capital account where foreign exchange was permitted with local currency for the purposes of trade and direct-investment allocating a large amount of funds inflow into the banking sector through purchase of bonds , investments in stock market and portfolio investment etc , This is apparent with Bangkok International Banking Facilities (BIBF ) which was set up in 1993 collected USD 31 billion by the year 1996 and this was adopted by almost all the East Asian Countries

What caused the fall in currencies of Thailand , Indonesia and South Korea was a sudden depreciation of respective currencies . The burden of short-term debt began to grow in volumes and...