The
Asian Economic Crisis:
Factors Causing the Crisis
Before the economic crisis hit in the 1990's, the world had been in awe of the ability of Asian nations such as Korea, Malaysia, Thailand, and Indonesia to make tremendous progress in battling problems such as poverty. In fact, the per capita income levels in each of these nations had increased up to 10 fold in the years before the crisis. The per capita income levels in Hong Kong and Singapore had both exceeded that of the most industrial nations in the West.
How, then, did Asia suddenly become embroiled in such a deep crisis? Various causes contributed to the crisis' overall effects. One is the imbalance in exports and imports into the countries. Export growth had slowed compared with the increased imports flowing into the Asian markets. Real exchange rates had become too high to sustain, and the policies enacted by the governments were insufficient to deal with these changes. In other words, too much extra money was being flowed into Asia without Asia being able to handle its consequences.
These problems brought a chain reaction of other problems that revealed the weaknesses in the economies of the affected Asian nations. Those that had initially underestimated problems that arose in Thaliand soon saw the root causes for these problems in neighboring Asian nations. The private sector was found to have borrowed too much from foreign countries without restraint. Market properties had become inflated to the point where the financial systems could no longer handle them. The government was also inadequate in monitoring and preventing these problems before they got out of control.
And got out of control they did, as people soon started to panic and doubt that the government and the central banks could correct problems. This, of course, made the problem worse, as foreign investers soon fled the more volatile areas and domestic investors started buying more foreign exchange to protect themselves.
