Asian Crisis Essay -- essays research papers fc

The beginning of the Asian financial crisis can be traced back to 2 July 1997. That was the day the Thai Government announced a managed float of the Baht and called on the International Monetary Fund (IMF) for 'technical assistance'. That day the Baht fell around 20 per cent against the $US. This became the trigger for the Asian currency crisis. Within the week the Philippines and Malaysian Governments were heavily intervening to defend their currencies. While Indonesia intervened and also allowed the currency to move in a widened trading range a sort of a float but with a floor below which the monetary authority acts to defend the currency against further falls. By the end of the month there was a 'currency meltdown' during which the Malaysian Prime Minister Mahathir attacked 'rogue speculators' and named the notorious speculator and hedge fund manager, George Soros, as being personally responsible for the fall in value of the ringgit. Soon other East Asian economies became involved , Taiwan, Hong Kong, Singapore and others to varying degrees. Stock and property markets were also feeling the pressure though the declines in stock prices tended to show a less volatile but nevertheless downward trend over most of 1997. By 27 October the crisis had had a world wide impact, on that day provoking a massive response on Wall Street with the Dow Jones industrial average falling by 554.26 or 7.18 per cent, its biggest point fall in history, causing stock exchange officials to suspend trading. Countries such as Thailand, Indonesia, Malaysia and the Philippines have embraced an unusual policy combination of liberalisation of controls on flows of financial capital on the one hand, and quasi-fixed/ heavily managed exchange rate systems on the other. These exchange rate systems have been operated largely through linkages with the United States (US) dollar as their anchor. (1) Such external policy mixes are only sustainable in the longer term if there is close harmonisation of economic/ financial policies and conditions with those of the anchor country (in this case, the United States). Otherwise, establishing capital flows will inevitably undermine the exchange rate. Rather than harmonisation, there seems to have actually been increased economic and financial divergence with the US, especially in terms of current account deficits, inflation and interest rates. The... ..., 'Crisis into Catastrophe?' Financial Times (London), 31 October 1997, p. 15. 8.Max Walsh, 'Aid Parcels to Japanese Banks', The New Zealand Herald, 18 November 1998, pp. 25-26; Max Walsh, 'Time for Japan to Save the World', The New Zealand Herald, 21 November 1998, pp. 29-30. 9.John McBeth, 'Big is Best: Indonesia's Rescue Package Draws on the Thai Experience', Far Eastern Economic Review, 13 November 1997, pp. 68-69; Greg Sheridan, 'The Asian Malaise is Curable', 28 November 1997, p. 13. National Business Review 10.Charles Lee, 'The Next Domino?' Far Eastern Economic Review, 20 November 1997, pp. 14-16. 11.Eric Ellis, 'Kim Inspects Mouth of IMF Gift Horse', Australian Financial Review, 24 November 1997, p. 12. 12.Teresa Wyszomierski and Christopher Lingle, "Fortress Japan Under Siege', Australian Financial Review, 19 November 1997, p. 20. 13.Ian MacFarlane, Forbes Magazine Business 1998, pp24-27. 14. Forecasts Lowered', The New Zealand Herald, 20 November 1998, pp. 29-30. 15.Reserve Bank of New Zealand, semi-annual Statement on Monetary Policy, November 1997, pp. 2-13. 16 A New Revolution by Peter Smith As published in NZBUSINESS, August 1998, PP