Between 1990 and 1996, the southeast Asian countries of Singapore, Korea, Indone
ID: 1228664 • Letter: B
Question
Between 1990 and 1996, the southeast Asian countries of Singapore, Korea, Indonesia, Malaysia, the Philippines, and Thailand were among the most financially solvent. For decades, these countries had maintained a stable currency and enhanced their globalization efforts. Following this prosperous period, Thailand, South Korea, Indonesia, Malaysia, and the Philippines dropped to net outflows of U.S. $12.1 billion in 1997. Indonesia's poverty line rose from 22.5 million to 118.5 million. In Thailand, the economy outsourcing policy resulted in some 800,000 workers becoming unemployed. South Korea's unemployment numbers exceeded two million by the end of 1999. These were crippling statistics. The International Monetary Fund (IMF) played a major role in helping these economies recover from the crisis. It committed U.S. $11.2 billion to Indonesia and U.S. $34 billion to Thailand. Many have criticized the IMF's assistance to southeast Asia during this time. Despite the criticism, however, the IMF emerged as a major player in providing assistance to southeast Asia. How could economies with such a dynamic growth history decline within a matter of months? (75 – 100 words) What characteristics and other factors contributed to these crises? (75-100 words) Was the IMF assistance needed, or was there another way for these countries to recover?(75-100 words) Case Study: What Caused the Southeast Asian Crises of the Late 1990s?Explanation / Answer
The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion. The crisis started in Thailand with the financial collapse of the Thai baht caused by the decision of the Thai government to float the baht, cutting its peg to the U.S. dollar, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.[1] Though there has been general agreement on the existence of a crisis and its consequences, what is less clear are the causes of the crisis, as well as its scope and resolution. Indonesia, South Korea and Thailand were the countries most affected by the crisis. Hong Kong, Malaysia, Laos and the Philippines were also hurt by the slump. The People's Republic of China, Pakistan, India, Taiwan, Singapore, Brunei and Vietnam were less affected, although all suffered from a loss of demand and confidence throughout the region. Foreign debt-to-GDP ratios rose from 100% to 167% in the four large Association of Southeast Asian Nations economies in 1993
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