Malaysia's Alternative Strategy

1944 Words4 Pages

[MALAYSIA’S ALTERNATIVE STRATEGY]

Introduction

The 1997 Asian Financial Crisis drew attention to just how fragile our global economic system can become either when overexposed to foreign market intervention, or when underperformance remains unchecked. Prior to June 1997, The Republic of Korea encountered issues as 10 of its 30 top performing chaebol (Conglomerate) collapsed underneath debt which far exceeded their respective equities. Korean steel production giant Hanbo faced additional stress after amassing a $4.39 billion debt for one new steel mill. Kia Motors fell due to accruing almost $2.1 billion in loans that was awarded on the basis of “need,” as opposed to independent judgment of credit and cash flow determined by the lending authority. Central banking authorities in Indonesia, Hong Kong, Thailand, the Philippines, and Malaysia came under threat as their respective currencies were jolted by speculative attacks from foreign investors. Political theorists have multiple assumptions behind what was the absolute cause behind the Asian Financial Crisis of 1997, but one country most analysts focus on is Thailand.

Asian Financial Crisis – Thailand

From 1987 to 1996 Thailand experienced a current account deficit averaging -5.4 percent of GDP per year, and the deficit continued to increase. In 1996, the current account deficit accounted for -7.887 percent of GDP ($14.351 billion). Aware of Thailand's economic problems and its currency basket exchange rate, foreign speculators were certain that the government would again devalue the baht. In the spot market, to force devaluation speculators took out loans in baht and made loans in dollars. In the forward market, speculators bet against the currency by contracting wit...

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