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The Asian Financial Crisis Causes Consequences Few financial events have so rocked the world economic order as the Asian financial crisis of 1997-98 Beginning with the collapse of the Thai currency in early July of 1997 and extending through the near meltdown of the South Korean economy in December 1997 through January 1998 the financial crisis toppled one tiger after another The chaos that resulted even challenged the solvency and stability of the once seemingly invincible Asian economic hegemon and the commonly accepted model of Asian economic development and prosperity Japan The interconnectedness of world capital and financial markets has made it difficult to isolate a national economy from the volatility in international currency markets and from the disasters that can result This paper will be about how economic variables are interconnected both domestically and internationally and how poor performance in one sector can have a domino effect throughout the world economy The Asian financial crisis was caused by a number of different but interrelated factors ranging from domestic regional and international sources Each factor carries different weight in each country The major factors summed up are as follows 1 Macroeconomic weaknesses related to current account deficits and mishandling of currency devaluations 2 Panic behavior by investors and lenders after the initial shock 3 Disgraceful lending practices of international banks 5 Significant weaknesses in the banking and financial sector 4 Weaknesses in the so-called Asian development model and too-cozy business-government relations and misguided government initiatives Probably the best word to describe the initial response to the Asian economic crisis is surprise Gerardo R Ungson in his analysis on the crisis said Perhaps what was most surprising about the Asian financial crisis is that it caught most of us by surprise Except for a disquieting article by MIT economist Paul Krugman who even then simply took issue with the sustainability of Asias breathtaking pace of growth commentators continued to laud
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