International stocks also declined as much as 60 percent. Luckily, the Asian financial crisis was stemmed somewhat due to financial intervention from the International Monetary Fund and the World Bank. However, the market declines were also felt in the United States, Europe, and Russia as the Asian economies slumped.
Asian and Tequila Crises I. Introduction The financial crises that erupted in Asia beginning in mid are now behind us and the economies are recovering strongly. This rebound did not happen spontaneously, but came about as a result of steadfast policy implementation by the affected countries and large-scale financial support from the international community, especially under IMF-supported programs for Indonesia, Korea, and Thailand.
Economic recovery is also pronounced in Malaysia and the Philippines. Sustaining the recovery and making long-term progress in reducing poverty depend critically on the continued maintenance of macroeconomic stability and firm implementation of key structural reforms.
It contains four country boxes one each on Indonesia, Korea, and Thailand, and a fourth that covers Malaysia and the Philippinesand seven pages of chartsthe first five on the individual country cases, and the final two on, respectively, the regional perspective and a comparison of macroeconomic developments during the Asian and Tequila crises.
New Breed of Economic Crisis The crises that began in Thailand with a series of speculative attacks on the baht unfolded after several decades of outstanding economic performance in Asia.
Although the circumstances varied among the countries concerned, the difficulties stemmed primarily from a combination of macroeconomic imbalances even though government budgets were broadly in balance and inflation rates were modestexternal developments, and weakness in financial and corporate systems.
The external imbalances were a reflection both of strong private capital inflows and of high domestic private investment rates, and were exacerbated, prior to the crisis, by appreciation of the U. These elements had been building up in an environment of large private capital inflows and rapid domestic credit expansion in liberated financial systems, where implicit government guarantees in addition to those entailed in exchange rate pegs remained pervasive, and supervision and regulation were not up to the challenges of a globalized financial market.
In these circumstances, a change in market sentiment could and did lead into a vicious circle of currency depreciation, insolvency, and capital outflows, which was difficult to stop. Contagion spread rapidly in the region after the devaluation of the baht, as other countries were perceived by investors as facing similar weaknesses that cast doubt on their credit-worthiness.
By the time the crises had run their course, a large proportion of the financial institutions and corporations in the affected countries were bankrupt. Indonesia, Korea, and Thailand. The strategy to address the crisis had three main components: In addition, concerted action was taken at different stages after the start of these programs, in different countries to stem private capital outflows.
Monetary policy was tightened at different stages in different countries to halt the collapse of the countries' exchange rates--which went well beyond what might have been warranted by fundamentals--and to prevent currency depreciation from leading into a spiral of inflation and continuing depreciation.
The monetary tightening was appropriately temporary: Fiscal policy was essentially to be held firm in the case of Indonesia and Korea, while in Thailand a fiscal tightening was planned to reverse an increase of the deficit the year before the crisis.
Steps were taken to address the weaknesses in the financial and corporate sectors. Other reforms were intended to alleviate the social consequences of the crisis and set the stage for a resumption of growth.
The macroeconomic projections underlying the initial programs were predicated on the assumption that confidence could be rapidly restored through the presentation of a convincing framework of policies, together with large financing packages.
Based on this assumption, growth was projected to slow down but remain positive.
The IMF--along with other observers--did not foresee the deep recessions that occurred. In addition to the financial assistance for programs of policy reform in these three countries, the IMF was engaged with other countries in the region that were coping with the crisis: This included support for the authorities' view in China that its exchange rate against the U.
The details of these reforms were formulated in collaboration with the authorities in each country, as well as the World Bank and Asian Development Bank. The need for financial sector reform was particularly pressing, given the origins of the crisis.
The following essential elements were common to policies in all three countries: But in all cases standards were raised gradually, in view of the tradeoff between the need to make a convincing step forward and the concern that raising standards too quickly could shock a system already reeling from the crisis.Unlike most editing & proofreading services, we edit for everything: grammar, spelling, punctuation, idea flow, sentence structure, & more.
Get started now! The Asian crisis first emerged in Thailand in as the baht came under a series of increasingly serious speculative attacks and markets lost confidence in the economy. On August 20, , the IMF's Executive Board approved financial support for Thailand of up to SDR billion, or about US$4 billion, over a month period.
Thai assets experienced decreasing demand and the currency (baht) depreciated accordingly. The situation in Thailand acted as a wake-up call for international investors to reassess the creditworthiness of other Asian countries (Goldstein).
Discussion of the case can be assisted by the following questions: QUESTION 1: Identify the main factors that led to the collapse of the Thai baht in ANSWER 1: Inflation of prices in Thailand clearly played a role, particularly those of property. much to identify good and bad economic policy in each epoch, but to outline the ensemble of class forces and the conflicts that led to the emergence of par- ticular policy responses.
this means that emphasis will be on delineating the. Identify the Main Factors That Led to the Collapse of the Thai Baht in PAGES 1. WORDS View Full Essay. More essays like this: thai baht, ppp theory, purchasing power parity, fall of thai baht.
Not sure what I'd do without @Kibin - Alfredo Alvarez, student @ Miami University.