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EAST ASIAN ECONOMIC CRISIS.
Term Paper ID:24880
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Essay Subject:
Analyzes causes & effects of monetary crisis of 1997-1998. Impact on Europe, politics, stock market, bailout plans, banking.... More...
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6 Pages / 1350 Words
10 sources, 11 Citations,
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Paper Abstract:
Analyzes causes & effects of monetary crisis of 1997-1998. Impact on Europe, politics, stock market, bailout plans, banking.
Paper Introduction:
The financial turmoil in East Asia has affected markets in different parts of the world and has had a particularly devastating effect on the countries of East Asia itself. Since the beginning of this year, the stock markets of Asia have collectively lost $400 billion in value, and the losses in Hong Kong in mid-October created concern around the world and affected other stock markets, including that in the U.S., which lost a large percentage of its value in one day. The effect on Europe has been more as a threat on the one hand and an opportunity on the other. While the monetary collapse affected markets around the world, the primary effect on Europe has come from changed relations with the financial markets in East Asia.
The failure of the monetary system has been blamed on the political systems in East Asia as much as on any economic
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Europe was interested in this happening for a good reason,because it had a vested interest in Asian success since European banksalone have exposure of about $35 billion in Asia-- more than the UnitedStates and Japan combined.[x] The meeting produced no dramatic decisions and only minimal Europeancommitment, though the Asians expressed confidence in the process andbelieved Europe would develop new opportunities in the coming months.While only small amounts of money were committed to projects aimed ateasing the effects of the crisis, the european leaders promised they wouldnot turn inward and would continue looking to the East as Europe launchesits new single currency. The Europeans in both cases were urged by Asian leaders totake advantage of the opportunities offered by the countries of East andSoutheast Asia. A bank representative noted the effects that would befelt: Mr. Bottelier said that world trade was expected to grow more slowly, by 6.3 percent instead of 6.7 percent, and that the United States and Europe would share equally in absorbing a $5 billion worsening in their trade balances.[vii] One way Europe has become involved is in seeing new opportunities forinvolvement in East Asia as banker, business partner, and supporter. Will It Even Exist?." Independent (December 2, 1997), 27."Variable Fallout." The Economist (November 29, 1997), 79-8 .-----------------------Neel Chowdhury and Anthony Paul, "Where Asia Goes from Here," Fortune(November 24, 1997), 96.Ibid., 96."Variable Fallout," The Economist (November 29, 1997), 79-8 .Indira A. Europeans were being asked toexpress their confidence that East Asia will bounce back and, with therequisite reform and restructuring in place, will emerge stronger and morecompetitive. South Korea and Thailand are expected to suffer a fall inoutput. Kohwrote about the April summit of leaders from the European Union and thosefrom Asian nations and stated his belief that Europe would remain friendlyto Asia, and he lists reasons why this should be so: The recent economic turmoil in East Asia cannot erase certain economic trends and developments of the last three decades. "Where Asia Goes from Here." Fortune (November 24, 1997), 96.Croft, Adrian. "Big Change to Asia's Role in Europe Summit." Reuters (March 29, 1998).Chowdhury, Neel and Anthony Paul. R. Economists agreethat growth in the short term in Southeast Asia will slow from around 8percent this year to 5 percent or less next. "Thailand Tries a Big Dose of Austerity." The Boston Globe (December 2, 1997), A1.Mcrae, Hamish. In addition, the region's recent devaluations have made their own goods more attractive in world markets.[iii]Thailand was given a $17.2 billion bailout from the International MonetaryFund, coupled with a new austerity package, and these efforts were followedby middle-class street protests, a new constitution, the collapse of agovernment, and the hasty creation of a new one. This is nolonger the case as the larger and more vital economies of the area arebeing affected, such as South Korea, whose economy is heading intorecession next year because of a massive economic restructuring now takingplace. for Influence in Asia." Reuters (april 5, 1998).Friedman, Alan. In 1996, the EU exported $123 billion worth of goods and services to East Asia.[viii]Many of these countries do not need a bailout but a restructuring and anawakening to the realities of the world economy today. Whilethe monetary collapse affected markets around the world, the primary effecton Europe has come from changed relations with the financial markets inEast Asia. Other countries face similar problems. In September it was estimated thatJapan would have growth of 2.9 percent in 1998, and that has been revisedto .6 percent. This is bad news for Westernmultinationals that have been banking on Asia for a big profit boost, andthis is one of the reasons the stock markets reacted as they did. "World Bank Official Is Upbeat On Global Impact of Asia Crisis." International Herald Tribune (February 3, 1998), A3.Koh, Tommy. As Asian economies contract, their appetite for imports will fall, at least in the near term. East Asia has replaced America as the European Union's largest export market. Moody'sInvestor Service lowered Thailand's foreign debt ratings to one grade abovejunk bond status.[iv] The problems in East Asia are deep-seated and relateto the way emerging nations develop government and administer theireconomies. "There's a sense that we're at the bottom." But that bottom could give way to another, and Thailand at least is still descending.[ix] The second Asia Europe Meeting (ASEM) in April was seen as anopportunity for officials from Europe and Asia to meet, as they had oncebefore in 1996. The effect on Europe has beenmore as a threat on the one hand and an opportunity on the other. Since the beginning of this year, the stockmarkets of Asia have collectively lost $4 billion in value, and thelosses in Hong Kong in mid-October created concern around the world andaffected other stock markets, including that in the U.S., which lost alarge percentage of its value in one day. "Where Will the Pound Be Five Years from Now? At the same time, this crisis offers evidence of the increasinglyinterlinked nature of the world economy, often paled under the heading ofglobalization. Hashimoto responded that Japan alone could not pull Asia outof the crisis. Europeans leaders also proposed to set up aEuropean network of experts to advise on reforming Asia's financial sectorand further agreed to send high-level missions to Asia to encourageinvestment.[xi] The East Asia monetary crisis has created an opportunity for bothEast and West to reaffirm their commitment to economic austerity, growth,and development along with making the necessary political changes toaccomplish these ends. The response of those in the market, however, was less adirect result of the crisis and more a common reaction to the perception ofa problem: While the overall plunge in stock prices can be traced back to the East Asian currency crisis that emerged in Thailand in July, and while nearly every expert argues that the turmoil on Wall Street and across Europe is a classic market panic that has nothing to do with fundamental economic factors, the reality is that investor stampedes can have an impact on the real economy.[v]Thus many of the changes brought about in the U.S. Somenations were more concerned than others. Indonesia's growth has been halved, and China may drop next year.Asia has been estimated to account for two-thirds of world GDP growth since199 , but the slowdown will not affect the developed world as much as itwill emerging nations: The main channel through which the rich economies will be affected is weaker demand for their exports. "For Today's East Asia, Europe Can Be a Friend in Need." International Herald Tribune (April 1, 1998), A1.Lakshmanan, Indira A. and Europe were theresult of the panic of investors and not the East Asian crisis alone. for Influence in Asia," Reuters (April5, 1998).----------------------- 9 However, it was President Bill Clinton who madethe most dramatic announcement from Washington as he urged Tokyo to adoptnew strategies to pull Japan out of its slump and to provide a motor forAsian growth. Those nations at the second meeting had to explain toEuropean leaders what steps have been taken to restore confidence.European leaders were also being asked to roll over and restructurecorporate debts and provide export credits. However,some believe that the crisis may finally force much needed structuraleconomic reform in the region.[ii] The fallout from the stock market problem has not yet ceased toaffect the world economy, and things may worsen as the scale of the problemis noted. "The Panic's Self-Fulfilling Impact Global Sell-Off Will Add to Asia's Pain but Only Dent U.S. Growth." International Herald Tribune (October 29, 1997), A1.Gewirtz, Carl. Following theonset of the crisis, there was a rolling slump in world equity markets thatserved as a major threat to the economies of East Asia and that also causedsome loss of consumer confidence in the West. East Asia's share of the world economy increased steadily from 9 percent in 1965 to 24 percent in 1993. Britain was concerned about thestability of the pound, and one of the things that might cause trouble forthe pound would be more serious fall-out from the East Asian financialcrisis than currently seems likely.[vi] Fears about the impact of the crisis were greatest in the early weeksafter it surfaced, but in time the World Bank determined that the impact ofthe East Asian financial crisis on the rest of the world would be ratherbenign, indeed causing some unanticipated beneficial effects virtuallybalancing the bad. Growth," International Herald Tribune(October 29, 1997), A1.Hamish Mcrae, "Where Will the Pound Be Five Years from Now? Will It EvenExist?," Independent (December 2, 1997), 27.Carl Gewirtz, "World Bank Official Is Upbeat On Global Impact of AsiaCrisis," International Herald Tribune (February 3, 1998), A3.Tommy Koh, "For Today's East Asia, Europe Can Be a Friend in Need,"International Herald Tribune (April 1, 1998), A1."And South-East Asia Thinks It's All Over," The Economist (November 8,1997), 35.Deborah Charles, "Big Change to Asia's Role in Europe Summit," Reuters(March 29, 1998).Adrian Croft, "Europe Vies with U.S. "Europe Vies with U.S. Yet, all of thegovernment moves did not seem to have allayed fears of investors thatThailand will be unable to repay its $95 billion foreign debt. The financial turmoil in East Asia has affected markets in differentparts of the world and has had a particularly devastating effect on thecountries of East Asia itself. Some saw theproblem as nearly correcting itself, but others noted that the underlyingstructural problems remained: In most countries, the runs on currencies and stockmarkets should steady. The problem in East Asia had an effect around the world, in Europe aselsewhere, but not much greater in Europe than elsewhere. Endnotes Bibliography"And South-East Asia Thinks It's All Over." The Economist (November 8, 1997), 35.Charles, Deborah. As one economist puts it, "an era of greater stability" is dawning. Lakshmanan, "Thailand Tries a Big Dose of Austerity," TheBoston Globe (December 2, 1997), A1.Alan Friedman, "The Panic's Self-Fulfilling Impact Global Sell-Off Will Addto Asia's Pain but Only Dent U.S. This was expected to havemore of an effect in the United Stats than in Europe, where it was believedit would have only a slight effect on corporate profits and economicgrowth. At one time, financial turmoil was confined to the smalleconomies of the area, and the world could ignore the problem. R. Japan was managing arecovery, but that has been aborted. The failure of the monetary system has been blamed on the politicalsystems in East Asia as much as on any economic troubles in the area. Thissituation will change "only when Asian politicians finally push theircountries to get their battered economic houses back in order" (Chowdhuryand Paul 96). For Europe, the crisis has caused minimal damagebut real concern, leading to new efforts to bolster those regimes deemedtrustworthy. Singapore's SeniorMinister Lee Kuan Yew recently observed: "In nearly every economic crisis,the root cause is political, not economic."[i] Even if all goes well forthe countries of East Asia, it could take as much as two years for thesenations to work their way out of their current problems. That will require making tough choices. The most tangible accomplishment of the ASEM was the launchof a $3 million trust fund at the World Bank to help pay for technicalassistance to restructure the financial sector and ease poverty incountries hit by the crisis.
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