International Finance and Asian Crisis
The Asian crisis covers five countries with exchange crises in the first instance. This reflects the inconsistency of currency markets and how this is quickly spread between states, even influencing macroeconomically stable economies. One of the reasons that the crisis in Asia was the dollar in front of the Yen, this weakened the foreign sector of different countries, the internal crisis of Thailand via commercial relations or interconnection of capital markets influenced a very high degree and this caused thefundamental variables of other countries were affected in the same way.
The origin of the Asian crisis was the financial release process, which was not in the correct orientation causing weakening in the financial system and a distortion in the allocation of resources. The decrease in the interest rates of industrialized countries, definitely helped the definition of a small risk aversion, making investors move towards assets issued in emerging economies. The short -term consequence was a speculative bubble of the value and real estate market of Asian states due to the saturation of external capital, devastating a scarcely developed banking system, which derives a stock market crisis, the escape of foreign capital originated massive devaluationAnd the breakdown of the economic model.
In this crisis, Thailand tries to maintain their currency rising interest rates by 6% and restricting foreign speculation, which were useless, since, national companies due to the protection of exchange rates decide to cancel external debt, carrying out various operationsTo reduce the risks of your exposure in the currency market. The Thai state after spending approximately 8000 million dollars of reserves, releases the exchange rate, caused the depreciation of its currency in 93%. This decision to change the fixed exchange rate that they maintained since World War II, generates that Yen depreciate 10%on the dollar, the WON in the same way falls 30%, the Malaysian coin falls 50%;Interest rates increase and bags fall. Because of this, plus the fragile financial system together with external and internal indebtedness, they make the Asian crisis spread very rapidly around the world even affecting the most solid developed economic systems existing at that time.
The Indonesian government decides to let its currency float, since the measures received to reduce liquidity failed to stop market pressures. This situation worsens and spreads to Japan and Hong Kong. The latter due to the strong influences that the Hong Kong dollar had, they raise the interest rate. This more the fall of stock markets induce a domino effect on almost all world stock markets;increasing the pressure of the countries on the way to development. On the other hand in South Korea in the same way, the pressures to the fall of the Won increase, after what happened in Hong Kong.
It should be noted that what happened in Thailand and the so -called Asian crisis, what most attracts attention was the rapid spread of other economies, due to the globalization of financial markets, which has obtained positive effects especially in the allocation of resourcesand effectively taking advantage of the comparative advantages of nations.
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