Until 1997, Asia drew almost half of total capital flows to developing countries. In particular, the economies of Southeast Asia maintained high interest rates asset management that attracted foreign investors seeking high returns. As a result, the region’s economies received a large inflow of money and experienced a dramatic increase in prices of assets. At the same time, the regional economies of Thailand, net worth Malaysia, Indonesia, Singapore and South Korea experienced high growth rates: asset management 8 to 12 of GDP in the late 1980’s and early 90’s. This achievement was widely held by financial institutions, including the International Monetary Fund and World Bank, and was known as the “Asian economic miracle.”
In 1994, economist Paul Krugman published an article attacking the idea of an “Asian economic investment miracle.” argued that economic growth in Southeast Asia had been the historical result of capital investment, which had led to growth in productivity, but the total factor productivity had increased only marginally or not at all. Krugman argued that only the total factor productivity and not capital investment, could lead to long-term prosperity.
The causes of the debacle are capital worth many and disputed. Thailand’s economy is developing in a bubble filled with “hot money”. Requiring more and more growing the size of the bubble. The same situation is in Malaysia, although in this case had a better political leadership, and in Indonesia, which had the added complication of what was called “savage capitalism” The flow of short-term capital was expensive, and meundo a highly conditioned by the rapid economic benefit. The money went into an uncontrolled manner to certain people only, not particularly the most appropriate or most efficient, but those closest to the centers of power.
In the mid 1990, Thailand, Indonesia and South Korea had large private CEO of current account deficits Inc and maintaining a fixed exchange rate encouraged external borrowing and led LLC is a privately owned investment advisory firm to excessive exposure to foreign exchange risk in both financial and corporate. In addition, two factors Inc. began to change the economic environment. When the U.S. economy recover from the recession of the early 90s, the Federal investment funds Reserve System by Alan Greenspan began to raise interest rates to cut inflation. This made the United States a more attractive investment destination with respect to the Southeast Asian flows that had attracted “hot money” through high interest rates in the short term and increase the value of the U.S. Dollar, which were established many Southeast Asian currencies, which made their exports less competitive. At the same time, export growth in Southeast Asia fell dramatically in the spring of 1996, deteriorating their current account position.
Some economists had suggested the impact of China on the real economy as a contributing factor to the slowdown in export growth in the countries of the Association of Southeast Asian Nations, even though these economists argue that the major cause of the crisis was over Real estate speculation. China had begun to compete effectively with other Asian private equity company exporters, particularly in the 1990s, after the implementation of a series of reforms aimed at exportation. Even more importantly, the Thai and Indonesian currencies were anchored to the dollar was appreciating at 90. Western importers sought cheaper manufacturing and, in fact, found in China, whose currency was depreciating against the dollar. Other economists dispute this theory by noting that, in the early 90, while Southeast Asian countries like China experienced a rapid and simultaneous growth of exports .
Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender-borrower relationship. The resulting large quantities of credit that was available for creating a climate of great economic leverage and pressure on prices of assets up to smaller and emerging funds an unsustainable level. These asset prices eventually began to collapse, causing the suspension of payments of the obligations of debt on the part of both individuals and companies. The resulting panic among lenders led to a large withdrawal of credit to countries in mutual funds crisis, causing a credit crunch, and then bankruptcy.
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