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... Frankel1 (2001), large current account deficit triggered the East Asian crisis in 1997-98. ... East Asian countries in 1997 relied too much on short-term foreign-currency-denominated debt, as in Mexico in 1994. ... They point out number of missteps taken by Asian governments, and IMF, such as defense of the peg, failure to intervene against failing banks, restrictive monetary and fiscal policy, etc. ... Jackson (1999) identifies 5 factors that presented simultaneously in countries affected by the Asian crisis in 1997-98:
Capital account convertibility
Fixed exchange rates
Excessive expansion of domestic lending accompanied by gross misallocation of investments by the private sector
Absence of regulatory and supervisory capacities to control excesses in the financial sector
Paralysis of political decision making at the onset of the crisis
Thailand, Indonesia, and Korea manifested all five elements, whereas China and India shared several but not all of the same characteristics. ... He believes that the single most important factor leading to the Asian crisis in 1997-98 was premature liberalization of capital account. He criticize IMFs policies that imposed such premature liberalization prior to the crisis. ...
In such shaky economic condition loss of confidence in the financial system, and sudden outflow of hard-currency or dollar may harm economy, and it usually happened. ...
What is my view on the causes of East Asian crisis in 1997-98? ... I think, excessive amount of money created in the crisis countries and their ineffective use (too much money chasing too few investment opportunities) made those countries vulnerable to sudden currency attacks. Further, I agree with Joseph Stiglitz, who states that the main cause of East Asian crisis was premature liberalization of financial market. Also, pegging to dollar is another reason of the crisis; if countries peg their national currencies to dollar, they should follow all policy changes carried by USA carefully and take appropriate measures in time. If someone gains on crisis, then it would be hard-currency supplier; the fact that the US and other hard-currency countries constantly gained monetary wealth at the expense of less developed countries (i. ... Even though national policy-makersEhave limited resources on taking broader measures to prevent financial and economic crises on international level, they still can contribute a lot by working together with policy-makers of other countries to prevent future crises. ...
If countries still fail to prevent another crisis on international level then an individual country can still work on its own in order to prevent crisis in its home or minimize adverse effects of crisis and overcome it in a short time.
Approximate Word count = 2060
Approximate Pages = 8.2
(250 words per page double spaced)
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