ASIAN FINANCIAL CRISIS

Lessons Learnt from Asian Financial Crisis of 1997

Lessons Learnt from Asian financial crisis of 1997

In the history of the early 2lst century, 1997 would probably be seen as a turning point that determined the fortunes of Asian economies in the new millennium. The questions that a future economic historian will pose concerning East Asia's 1997 financial crisis are already apparent. The Asian financial crisis erupted with devaluation of the Thai baht on July 2, 1997. It stunned not only to the investors and creditors of the region but also to academics and economists from the major international organizations. The achievement of sustained growth with equity prior to the crisis was real that the policies developed by the countries were taken as an example of what should be done. This essay explains the lesson that we have learnt from the East Asia financial crisis of 1997.

The factors of the crisis

All economic crises have a number of manifestations, from our point of view; the most important feature was the sharp contraction in GDP growth rates. It is shown in the following table:

GDP Growth Rates (%)

The study of the crisis is related to the behaviour of the external sector in these economies and the nature of systems and corporate financial statements from them. Then there is a second manifestation of the crisis that was the depreciation of the nominal exchange rate affected economies and a third manifestation of the crisis was the reversal of private capital flows to the region, which became unsustainable current account deficits of the balance of payments and it influenced the reductions referred (McKibbin, 1998, 31).

The crisis was not of only exchange but also of financial. Therefore, the crisis was private rather than public, and was expressed in an abrupt reversal of capital inflows through the banking system. A stress echo was worthy of unanticipated nature of the reversal of capital flows (Ho, 2001, 102). The banking system's vulnerability to an eventual reversal of capital was high because in this situation, banks would face external payments that banks were not be able to afford. In that scenario it might be thought that the respective central banks would use their reserves for domestic payments covered it with the outside (Garran, 1998, 74).

In summary, the traditional explanation of a currency crisis provided by the so-called models of first and second generation does not seem to fit with what happened in East Asia. There was little evidence of macroeconomic vulnerabilities, except the current account deficit in balance of payments was financed by private capital inflows. The crisis broke out when they want to retire from the capital region and therefore it traced the origin of this echo in other aspects, such as the fragility of financial systems, the type of financing external (within which the predominance of short term, channelled through the private banking and corporate direct borrowing), all in a context of the economy where capital globalized seem to migrate from one place to another ...