Professional Documents
Culture Documents
Asian Crisis - How & Why
Asian Crisis - How & Why
Asian Crisis - How & Why
Second, there are some financial factors, which can explain why
those Asian governments kept the pegged exchange-rate regime so long, and
also why the markets reacted so drastically--overreacted in some cases.
In the last several years, many of the Asian countries have been trying
to attract short-term capital money from abroad to finance growing
credit demand at home. This is the main reason why the governments were
so reluctant to devalue their currencies for the benefit of foreign
investors, and were so willing to liberalize their financial system
without implementing reasonable rules and regulations on financial
institutions. As a result, their financial system as a whole became so
vulnerable, and once it was attacked by speculators, there was a massive
outflow of short-term capital from the system, leading to the market
overreaction.
Finally, one might add the IMF factor. While the IMF has extended its
assistance in an attempt to help ease the Asian crisis and to restore
some confidence in the markets, there is much criticism of the IMF's
remedies for the crisis. Especially, many government officials in Asia
along with some Western economists are critical of the restrictive
rules and conditions attached to the IMF's aid packages; tight fiscal
and monetary policies, together with structural reforms, forced by the
IMF, might well make the already depressed economy even worse. Others
insist that the IMF-led rescue packages have bailed out many investors
and thereby prompted more risk-taking behavior, leading to the
worsening of the financial crisis in Asia. The question is whether the
IMF is part of the solution or part of the problem itself