Resulting from the devaluation of China's currency was an exacerbation of problems throughout Asia.
VII. 1995-96 -MINI-RECESSION, DEBT PROBLEM, ACCUMULATION
In the summer of 1995, the reversal of the chronic weakness of the dollar resulted in the depreciation of the Japanese yen, which had been approaching an acute deflationary crisis with a steep fall in the stock market. (Makin, 2000; paraphrased)
VIII. 1996-97 - DEBT / FOREIGN EXCHANGE, RESERVE RATIONS DETERIORATE
The work of Williamson (1999) entitled: "Implications of the East Asian Crisis for Debt Management" relate that a countries debt can be viewed from four different external perspectives in terms of debt composition which include: (1) FDI; (2) Portfolio Equity; (3) Long-term loans; and (4) short-term loans. This is the ideal composition of a countries debts however the debt profile of countries in East Asia are known to profoundly differ from the foregoing profile in that they had too much short-term debt relative to long-term debt and as well too much debt as compared to equity.
IX. 1997 JULY 2ND - CURRENCY CRISIS EXPANDS FROM THAILAND INTO EAST ASIAN COUNTRIES
On July 2, 1997 the devaluation of the Thai baht shocked the already struggling economies in the East Asian countries. This devaluation was an attempt to "defend an overvalued almost-fixed exchange rate even though much foreign debt had accumulated, the current account was in substantial deficit, and export growth had turned negative. This invited a series of speculative raids, which eventually exhausted the reserve stock and led to devaluation..." (Williamson, 1999) with an effect on the solvency of the financial system and the corporate sector that was devastating and only intensified the crisis. The economies of the East Asian countries attempted to conceal the problems by borrowing from the banks. The International Monetary Fund issued an ultimatum to South Korea which included: (1) cuts in domestic government spending; (2) doubling of unemployment from 4% to 8% (3) closure of twelve government-owned banks; (4) restrictions on foreign ownership of Korean banks to be terminated; (5) foreign firms would be allowed full access to the Korean government bond market; (6) foreign firms would be allowed a 100% share in top Chaebol firms, a jump from 25% previously; (7) Foreign firms must be allowed full access to insurance; and (8) the government chaebol link would be more transparent.
X. EXPLANATION of the ASIAN CRISIS
The Asian currency crisis has been described from the mainstream view, or that of 'cronyism' to be in the nature of a moral hazard illustrated by the fact that the East Asian businesses attempted to hide the expansion of foreign debt and over-extension of credit. Additionally explanations have been given which state over-liquidity and under-regulation combined with speculation in the financial markets explain the Asian Crisis. The work of Wade (1998) relates that it is agreed among most that "the sharp pullout of funds by investors across the region was the trigger, and that the pullout was panicky." (Wade, 1998) Furthermore, liberalization "permitted domestic agents to raise finance on foreign markets and gave foreign agents access to the domestic financial market." (Wade, 1998) Furthermore, liberalization results in governments giving up their capacity to coordinate foreign private borrowing. Due to a surge in investment in the region productivity and profits suffered and marginal companies were putting more and more investment into speculative and non-tradable ventures such as property and land. Wade states that the "whipsaw movement of capital inflows and outflows is the main proximate cause of the crisis." (1998) Things were made worse by the International Monetary Fund who misdiagnosed the problem "as a macroeconomic balance-of-payments problem rather than as a microeconomic debt inflation problem, and as a crisis of excess consumption rather than excess investment..." And finally the IMF's insistent on a "domestic austerity package and on fundamental structural...
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