Asian Slump
Several years ago the Asian economy was expanding very rapidly; this boom was referred to as the "Asian Miracle." During this time, few people anticipated an economic recession. In fact, most economists confidently expected Asian countries to continue growing and become world power houses. No where was there any hint of recession.
However, this boom forced these Asian countries to borrow large sums of money to sustain their growth. They accumulated vast amounts of (mostly bad) debt: borrowing money for such items as food and other consumable products.
Unfortunately, banking regulations were very poor. Banks were not saving enough money for 'rainy days,' preferring instead to use it all. For example, Taiwan and Singapore have not been hit as hard as other Asian countries by the current currency slump; one reason they have managed to resist a strong recession is their practice (and foresight) of managing sufficient reserves. Consequently, they have plenty now to help them forestall recession.
In 1995 the American dollar began to rise in value. Many of the Asian countries were pegged to the American dollar. As the American dollar's value rose, so did the value of all of the Asian currencies. The result was that inflation rates sky-rocketed.
Thailand was forced to abandon its peg on the US dollar. Soon, most other Asian countries were also forced to drop their peg on the dollar and let their currency float; this caused the value of their money to drop. Because their money was now worth a lot less and they were already heavily in debt, it became very hard to pay off debt.
Whether investors have confidence in a country or not makes a big difference in the value of the currency. The 'domino effect' afflicted Asia: country after country started falling into recession. Investors had no idea whether or not a country would succumb to recession, therefore confidence was quickly lost and the value of the money plummeted.
Recently, economies surrounding Asia - such as in Australia and Russia - have started to experience recession. In July, United States' stocks dropped considerably. The Asian crisis is putting a damper on a lot of countries. Hopefully, countries will learn from the mistakes that caused the Asian currency crisis so there is not a global recession.
Summary:
The majority of the Asian countries declined into an economic crisis because:
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