The economies of east Asia at the centre of the recent crisis have been some of the most successful emerging market countries in terms of growth and gains in living standards. With generally prudent fiscal policies and high private saving rates, these countries had become a model for many others. That this region might become embroiled in one of the worst financial crises in the post-war period was hardly ever considered - within or outside the region a realistic possibility. What went wrong? Part of the answer seems to be that these countries became victims of their own success. This success had led domestic and foreign investors to underestimate the countries’ economic weaknesses.
During 1998, it became increasingly apparent that the global economy was heading towards a period of slower growth, with a quarter of the world economy in recession and world trade growth set to fall by two-thirds. These trends began with the Asian Crisis. The countries at the heart of the Asian Crisis are the same countries that had, for the previous two decades, shown spectacular economic growth that was the envy of the world: Korea, Singapore, the Hong Kong Special Administrative Region (SAR), Taiwan, Thailand, Indonesia, Malaysia and the Philippines.
Until the advent of the crisis in 1997, these ‘Asian Tigers’ had been held up to developing nations as prime examples of how to progress. Any doubts about their economic policies were easily dismissed, given their spectacular record of economic growth.
CONTENTS
I Introduction: South East Asia Before the Crisis
II The Chronology of Events
III Factors Behind the Asian Crisis
- A. Underlying Causes of the Asian Crisis
1. Unsustainable Current Account Deficits
2. Over-Dependence on Short-Term Foreign Funds
3. Poor Regulation of the Economy
4. Over-Inflated Asset Prices
5. Macroeconomic Policy: Fixed Exchange Rates
B. Initial Triggers of the Events in South East Asia
1. Changed Sentiment Amongst Investors in South East Asia
2. Speculation by Participants in the Currency Markets
3. Contagion
IV Effects of the Crisis on Economies in the Region
- A. Equity Markets
B. Competitive Currency Devaluations
C. Interest Rates
D. The Real Economy
V The IMF and its Handling of the Asian Crisis
- A. Financial Assistance
B. The Austerity Programme
1. Fiscal Policy
2. Monetary Policy
C. Restructuring
D. Criticisms of the IMF
VI The Global Impact of the Asian Crisis
- A. The Wealth Effect: Falls in Equity Markets
B. International Trade
C. Foreign Direct Investment
D. Economic Growth
VII Preventing Future Crises
VIII Appendix I: Graphs of South East Asian Markets
IX Bibliography
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