[MALAYSIA’S ALTERNATIVE STRATEGY]
Introduction The 1997 Asian Financial Crisis drew attention to just how fragile our global economic system can become either when overexposed to foreign market intervention, or when underperformance remains unchecked. Prior to June 1997, The Republic of Korea encountered issues as 10 of its 30 top performing chaebol (Conglomerate) collapsed underneath debt which far exceeded their respective equities. Korean steel production giant Hanbo faced additional stress after amassing a $4.39 billion debt for one new steel mill. Kia Motors fell due to accruing almost $2.1 billion in loans that was awarded on the basis of “need,” as opposed to independent judgment of credit and cash flow determined by the
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On 2 July 1997 Thailand had $2,850 billion remaining in international reserves and could no longer protect the baht. That day Marakanond decided to float the baht.
Asian Financial Crisis – Neighboring Countries
Neighbor South Korea dealt with economic uncertainty leading up to the 1997 currency crisis which plagued Thailand. South Korean chaebols or conglomerates were recording record debt levels between 1996 and 1997. Banking policies enacted by President, or Dictator, Park during the late 80’s constructed an economic environment whereby loans to chaebols were issued on the basis of company need, as opposed to individual judgment on part of the loan issuing authority. In more succinct terms, nationalized banks issues loans to chaebols without verifying whether the company could pay the loan bank, or whether the interest rates were reasonable, or even whether the company’s venture had enough collateral to back it up. In essence, chaebols were tasked with repaying loans that they might not have the appropriate level of capital for. Therefore, on the eve of the Asian Financial Crisis, chaebols such as Hanbo Steel, and others, were closing their doors due to debt burdens incurred without a proper foundation for capital generation.
Neighbors to the South, Indonesia and others, suffered from currency, stock, and equity collapses, rather than tangible asset collapse. The currencies of Indonesia, Singapore, Hong Kong, and others, took massive hits from
Such an event caused many problems in the country. The first problem had been that when banks lost tons of money due to the stock market crash, they also lost the life’s savings of so many hard
* Complete all housing design and renovation projects no more than 8% over the established baseline cost or schedule
In late 2007, America was hit with the most significant blow to its finance sector since the Great Depression. Upon careful retrospection of the nations economic policy since the Great Depression, many discovered that slowly but surely, America had been setting itself up for the “perfect storm” all along. Without question, it was evident that due to deregulation, excessive accumulation of debt (especially in the form of over leveraging), greed, treacherous decision-making, and obscure practices between financial institutions, America’s economy was brought to a screeching halt. While facing the impending failure of the country’s powerhouse banks, the federal government was forced to intervene, saving some banks, while merging or leading others to their demise. Additionally, the United States Department of Treasury was faced with rectifying the lack of credit available to fuel commerce, both business and personal. After jump-starting the nations cash flow with government assistance packages, the government introduced reform to oversee and limit corporations that are deemed “too big to fail” hoping to ensure that no such economic downturn should arise in the future.
The early 1990s exhibited a boom in many economies throughout the world due to factors such as globalization and other trade liberalization practices, but this boom was quickly halted in the latter half of the decade when bad investments nearly sent the entire world into economic turmoil. With the introduction of free trade practices such as the North American Free Trade Agreement, or NAFTA, the economies of many of the worlds “developing countries” skyrocketed due to an influx of foreign investment. At, first this exponential boom in small countries with emerging economies seemed like it would never end. However, this all changed when investors “caught wind” that these developing countries did not have the means to keep up with the massive inflow of investments. This led to what we know refer to today as the Asian Financial Credit Crisis. In order to understand how to prevent such a disaster from happening again, we must first examine how exactly this event was triggered, and what should have been done differently.
After a decade of sustained growth, the current situation in Thailand is one of unprecedented economic turmoil. The countries exports have halted, foreign investors have become hesitant with their money due to the account deficit, the stock market plummeted, and big loans made by banks have caused a large accumulation of debt. Typical causes of an economic crisis, such as: high debt, large current account deficit, deregulation of the banking industry without proper controls in place, and a semi-fixed exchange rate are all at the forefront of the nation’s current economic state.
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 Global Financial Crisis, also known as The Great Recession, broke out in the United States of America in the middle of 2007 and continued on until 2008. There were many factors that contributed to the cause of The Global Financial Crisis and many effects that emerged, because the impact it had on the financial system. The Global Financial Crisis started because of house market crash in 2007. There were many factors that contributed to the housing market crash in 2007. These factors included: subprime mortgages, the housing bubble, and government policies and regulations. The factors were a result of poor financial investments and high risk gambling, which slumped down interest rates and price of many assets. Government policies and regulations were made in order to attempt to solve the crises that emerged; instead the government policies made backfired and escalated the problem even further.
Just after ten years of Asian financial crisis, another major financial crisis now concern for all developed and some developing countries is “Global Financial Crisis 2008.” It is beginning with the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and spread like a flood. At first U.S banking sector fall in a great liquidity crisis and simultaneously around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. (Global issue)
South Korea was transformed into an industrial powerhouse with a highly skilled labor force. In the late 20th century, however, economic growth slowed, and in 1997 South Korea was forced to accept a $57 billion bailout from the International Monetary Fund (IMF), then the largest such rescue in IMF history. The country also wrestled with reforming the chaebol and liberalizing its economy. Nevertheless, its economy enjoyed a recovery in subsequent years, and the country entered the 21st century on a relatively firm economic footing.
Mr. Raghuram G. Rajan, the author of this book was one among the few economists who saw the early signs of Subprime Crisis before it actually occurred in U.S. in 2007. Although this book starts with rationale behind such prediction, the book stands true to its sub-title ‘How Hidden Fractures Still Threaten the World Economy’. The reason being author has deeply examined the root causes of such economic meltdowns including that of 1994 Mexican Crisis, 1998 East Asian Crisis to name a few. However, in this paper we critically evaluate mainly the aspects of 2007 Subprime Crisis, The case of Japan, 1994 Mexican Crisis and the future prospects of India taking into consideration all these fault lines that we examine in these meltdowns.
Sectoral Slumps. A slump in the sectors where financial institutions’ loans and investments are concentrated could have an immediate impact on financial system soundness. It deteriorates the quality of financial institutions’ portfolios and profitability margins, and lowers their cash flow and reserves. In transition economies, these problems may also arise due to lack of progress in the restructuring of state-owned enterprises.
The ruling party of Malaysia, Barisan Nasional has been in power since the country’s independence in 1957. This fact has provided Malaysia a high degree of stability and the confidence of foreign investors / businesses.
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.
Malaysia is situated along the Straits Of Malacca, connecting the Indian Ocean with the South China Sea and Pacific Ocean so trading in this area has been around for centuries. Spices were the main goods traded in the 15th century and as the Malacca Sultanate grew from strength to strength, it eventually gained a monopoly on all trade passing through the straits1. The Straits Of Malacca is still one of the most vital shipping lanes in the world.
* The malignancy of the Asian financial turmoil was derived from the externally-driven currency crisis with the internally induced banking crisis. In other