1997 Asian Financial Crisis

4291 Words Jul 29th, 2010 18 Pages
1997
Asian Financial Crisis

Angelica M. Montefalcon
4FM2

I. Introduction

For about twenty years, East-Asian countries were held up as economic idols. They were hailed as the ideal models for strong economic growth of developing countries because of their high savings and investment rates, autocratic political systems, export-oriented business, restricted domestic markets, government capital allocation, and controlled financial systems.

They were even stories about “The East Asian Miracle" because of the extraordinary growth rates they achieved and the speed with which they have transformed themselves from poor countries into industrial powerhouses. Western leaders were impressed by their ability to continue to achieve
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Thais’ real estate business boomed, owning property and selling or leasing it for development became one of the most popular businesses in their country. Rich Thai players entered into collusion with local and foreign banks, mostly Japanese banks, to loan more money just to keep on building. Because of overbuilding, they were no longer able to rent out most of their new office and condo space. Prices dropped due to oversupply, so they couldn't get nearly as much money on what they used to built those. When the bank loans became due, they couldn't pay. This also became a contributing factor in the problem faced by Thailand during the Asian currency crisis. They wern’t able to weigh whether investments in buildings are worthwhile, they were reckless and the only thing they though was the funds they were able to get for building those infrastructures. Their foreign borrowing went to prestigious projects with no solid economic returns.

Another reason behind the 1997 Asian financial crisis was the large current account deficits. Asian leaders agreed that large current account deficits could not be good, but they made the logical economic argument that if a current account deficit mostly reflects higher investment, it would eventually increase an economy’s competitiveness and therefore its ability to repay the debt, and would certainly be more sustainable than a deficit driven by
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