Enumerate what led to the south east asian crisis in 1997.
Answers
The collapse of the Thai baht in July 1997 was followed by an unprecedented financial crisis in East Asia, from which these economies are still struggling to recover. A great deal of effort has been devoted to trying to understand its causes. One view is that there was nothing inherently wrong with East Asian economies, which have historically performed very well. These economies experienced a surge in capital inflows to finance productive investments that made them vulnerable to a financial panic. That panic–and inadequate policy responses–triggered a region-wide financial crisis and the economic disruption that followed (Sachs and Radelet 1998).
An alternative view is that weaknesses in Asian financial systems were at the root of the crisis. These weaknesses were caused largely by the lack of incentives for effective risk management created by implicit or explicit government guarantees against failure (Moreno, Pasadilla, and Remolona 1998 and others cited below). The weaknesses of the financial sector were masked by rapid growth and accentuated by large capital inflows, which were partly encouraged by pegged exchange rates.
While the two views are not mutually exclusive, their policy implications vary greatly. If a panic unrelated to fundamentals fully explains Asia’s financial crisis, reforms in the economic structure or in financial sector policy are not essential in planning Asia’s recovery. If, however, weaknesses in the financial sector were important contributors to the crisis, reforms are indeed essential. To shed further light on this question, this Economic Letter briefly reviews Asia’s recent financial crisis and the two alternative views of its cause.
The collapsed led to Thai bhat in July 1997 was followed by an unprecedented financial crisis in East Asia ,from which these economic are still struggling to recover .That panic -and inadequate policy response-triggered a region-wide financial crisis and the economic distribution....
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