South East Asian Crisis

2585 Words Sep 11th, 2011 11 Pages
September 10, 2011

September 10, 2011

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South East Asian Crisis
South East Asian Crisis

INTRODUCTION

The South East 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 USD, 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
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Western importers sought cheaper manufacturers and found them, indeed, in China whose currency was depreciated relative to the dollar.

Lessons for the developing countries from the Asian crisis: 1. Need for great caution about Financial liberalization and Globalization
One of the most important lessons from the Asian crisis is that it is prudent and necessary for developing countries to have measures that reduce its exposure to the risks of globalization and thus place limits on its degree of financial liberalizations. In a globalized world, developing countries often face tremendous pressures coming from developed countries, international agencies, transnational and national companies to completely open up their economies. It is proven that liberalization can and has played a positive role development, however; the Asian crisis has shown up that in some circumstances, liberalization can play havoc, especially on small and dependent economies. This is more so prominent in the field of financial liberalization, where lifting of controls over capital flows can lead to such extreme results as a country accumulating a mountain of foreign debts within a few years, the sudden sharp depreciation of its currency, and a sudden rush of foreign owned and local owned funds out of the country in a few months. So,

* Developing countries should exercise caution while
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