Impact of the Asian Financial Crisis on Singapore 1.0 Introduction 1.1 Asian Financial Crisis Until 1996, many developing countries, especially the Southeast Asian countries were developing their financial markets, which attracted huge inflows of foreign capital. Coupled with weak supervision on continued liberalization of the financial markets, huge current account deficits, and adoption of fixed exchange rate system, these economies were vulnerable to speculative attacks. The Asian Financial Crisis (AFC) started from Thailand, whereby the property and share market started declining and rumours of banks and finance companies caught in financial difficulties led to massive currency attacks stemming from loss of investor confidence. 1.2 Spread of crisis The crisis spread to many neighbouring countries such as Indonesia and Philippines who were believed to have similar unstable economic situations. Although Singapore did not demonstrate similar economic situations such as current account deficits, Singapore 's geographical proximity with its neighbouring countries and economic dependence resulted in Singapore being hit by the crisis too. Evidence of current account surplus in Singapore is shown in Table 1. The current account balance to GDP ratio of Singapore was a 15.7% surplus in 1997, as compared to most of the other crisis-affected countries which experienced deficits. Nonetheless, the impact of the crisis on Singapore was much less severe, and this report seeks to
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The Fall of Singapore to the Japanese happened on the 15th February 1942 and is thought to be one of the greatest defeats in the entire history of the British Army and most likely Britain's worst defeat in all of World War 2. Singapore was considered to be a major part of the British Empire and it was thought to be as strong as a fortress. Improvement's to Singapore as a British military base had only been completed in 1938, a mere 4 years before the fall of Singapore.
In 1997 the country’s exports were no longer booming and the Thai economy entered a unsafe and unpredictable phase. Foreign investors were skeptical about the current-account deficit and the big loans property developers. Bad debt continued to mount up and the stock market crashed to depths not seen in eight years. This caused the baht to fall prey to speculative attack. High debt, heavy borrowing, large current account deficit, and the semi-fixed exchange rate system all played a part to the Thai crisis.
The most popularly known subprime mortgage crisis came into lime light when a steep rise in home foreclosures in 2006 spiraled seemingly out of control in 2007, triggering a national financial crisis that went global within the year. The maximum blame is pointed at the lenders who created such problems. It was the lenders who ultimately lent funds to people with poor credit and a high risk of default. When Fed flooded the markets with increasing capital liquidity, its intention was not only to lower interest rates but it also broadly depressed risk premiums as investors sought riskier opportunities to bolster their investment returns. At that point of time, lenders found themselves loaded with capital for lending out and higher willingness to undertake higher risks in a surge to get greater investment returns. To overcome of the financial instability and housing price bubbles, Federal Reserve has to intervene to combat these issues.
There were two major happenings that temporarily effected Singapore’s economy between 2001 and 2003—the worldwide electronics slump and the outbreak of Severe Acute Respiratory Syndrome (SARS). Both times, growth bounced back, by world demand for electronics, pharmaceuticals, other manufactured goods, and financial services. The return was mostly contributed to by the economies of its major trading partners—the United States, the European Union, Japan, and China, as well as expanding emerging markets such as India (Bureau of East Asian and Pacific Affairs, 2010). The next
The credit crunch, which occurred in the U.S. housing market between 2007 and 2009, led to the biggest global financial crisis. The impact of this crisis extended over the world, and the economies of many countries were damaged. Kawai stated that: ‘The ongoing global crisis has had a profound impact on the Asia and Pacific region, particularly on its exports.’ (2009:1)
He contends that when the East Asian companies opened up their markets to allow in foreign capital and appease citizens who wanted globalization, they unintentionally doomed themselves for the future (Wade 107). Before they opened up their markets, bankers in East Asian countries were very cautious about whom to give loans to, and as a result, banks often had a very good relationship with those they chose to lend money. As a result, loans were only given out to safe investments. This changed when these countries opened up to the international economy, which allowed inflows of foreign capital (95). The United States in the 80’s financed its debts by selling Treasury Bills, which were commonly bought by foreign banks and then resold for additional capital. When the United States went into a recession, these foreign banks decided to invest in East Asian markets because these markets had expansive room for growth, which allowed investors to get a high return on investment (100). With the new capital, the East Asian countries invested in industry and asset bubbles, which require constant capital to pay off debts. When the United States became a good investment again in the mid-1990s, foreign investors started investing back in the United States. The capital needed to finance the East Asian countries was gone, and these economies with high debt-to-equity
Then the crisis has spread to Asia especially in Japan, Korea, China, Singapore, Hong Kong, Malaysia, Thailand, and Indonesia. Some experts believe that the problem was triggered by mark-up housing price in the United States. Also, the U.S. Federal Reserve (the Fed) had less prudent to stabilize the financial system since many years. This situation is motivated by a hope to keep up the demand for residential properties and then banks in the United States distributed the housing loans to people who do not have adequate financial capacity such as, the people who do not have income, job and asset. Furthermore, these housing credit made into investments tool to attract the investors such as banks, securities firms and insurance. Unfortunately, there are a lot of unpaid loans in a large numbers. As a result, banks have difficulties to pay investors who need to withdraw money from banking products while prices are still high. It makes the market structure to be disturbed because the interrelated of investment product.
Singapore has a highly developed market which has historically revolved around extensive exports trade, in other words an export driven economy hugely dependant on export of goods to other countries.
With foreign manufacturing industry entering Singapore market the manufacturing sector and its share in GDP grew from 16.6% in 1965 to nearly 30 % in 1980 and in 1993 manufacturing contributed to about 28 % of the total GDP and accounted for nearly 28% of employment. Singapore’s GDP raise to 13 times between 1960 and 1999. The nation has shown greatly decrease of figure of poverty. (United Nations 2000)
The 2008 financial crisis consequences strongly affected the world, from strong economies in Europe to slow growth developing countries. The world’s economy suffered a downfall that took around 2 years to recover.
However, the development of Singapore’s society cannot be predicated on pure economics alone. Even though globalization has enabled Singapore to fare well in economic development, however, termed the perils of success, globalization has brought about undesirable
The Singapore economy had proved its resilience during the worst post-war recession and experience exceptionally high economic growth during the 42 years since its independence. For the period 1966-1973, the economy expanded consistently at a double-digit growth rate in real terms (Kum Poh, 1982, p.1). Gross Domestic Product (GDP) at constant prices continues to rise at an annual rate of 8 percent till 2005. With population growth at 2.1 percent, per capita GDP increased by 5.8 percent on average each year (Gesquiere, 2007, p. 12).
companies and investments in financial instruments. Fourth, the currency turmoil affects U.S. imports and exports as well as capital flows and the value of the U.S. dollar; the U.S. deficit on trade was rising as these countries import less and export more. Fifth, the crisis is causing economic turmoil that is exposing weaknesses in many financial institutions in Asia; some have gone bankrupt. The economic problems of the troubled Asian economies are adversely affecting the United States, Japan, and others.
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 (financial contagion). It is also commonly referred to as the IMF crisis.