.. Often times, banks were pressured to make loans at the request of the government. The government felt if this cycle of borrowing and reinvesting in domestic industries continued, so would the economic growth. By 1997, many Asian businesses had debts valued at between three and six times the total amount of cash invested in their companies. These massive debts quickly led to bankruptcy when currencies fell and no one was willing to extend any more loans in Asian countries.

Corruption was also rampant in this region, causing further problems in Southeast Asia. In June 1997, 11 prominent businessmen, bankers and politicians were convicted of embezzling funds and pressuring banks to make illegal loans to a South Korean corporation. The firm’s executives had bribed politicians for special government assistance to keep their firm, which had large amounts of debt, afloat. It was said that this type of scandal was typical of the corrupt business practices in many Asian countries. Pressure for Change Many argue that by manipulating the financial sector and coddling business conglomerates with special assistance, Southeast Asian governments promoted risky and foolish business practices that have imperiled the economy.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

They blame the governments carelessness for the Asian Financial Crisis. They say that the extreme growth in the 1980’s and 1990’s was due to a large accumulation of bad debt and excessive government intervention in their economies. This is demonstrated in Richard Hornik, European business editor for Time magazine, words: “The financial crisis facing Asia today is merely a symptom of a much deeper problem. The social and political assumptions on which the Asian model was founded are terribly outdated. The global economy is far too complex and fast paced for any bureaucrats to control.

The only miracle in Asia is that this approach worked as long as it did. Some analysts have criticized Japan’s economic system, since it has been the economic model for other nations in the region. Japan is the villain, according to James Glassman, a fellow at the American Enterprise Institute, a conservative think tank in Washington, D.C. Glassman says that Japan’s command-and-control capitalism is a disaster since investment decisions are determined by government officials rather than by the free market. If the normal mechanisms of a free market had been allowed to operate in Southeast Asia, he says, the region’s current problems could have been avoided.” The deals the IMF struck with Southeast Asia largely supported the view that the region needed to strengthen its free-market system in order to avoid similar crises in the future. In return for IMF financial support, South Korea, Indonesia and Thailand were forced to agree to reform their financial systems.

They pledged to eliminate government influence over private-sector borrowing and to open their domestic markets to more foreign competition. South Korea also made a number of pledges to the IMF. First, they agreed to reduce public spending and to raise interest rates to discourage an over abundance of domestic investment. They also agreed to decrease the number of protectionist trade policies in order to allow an increased free market system. These reforms the IMF demanded were aimed at opening up Asian markets to more foreign competition and force corporations to make investment decisions based on market forces instead of on political influences.

Many Western economists applauded the terms of the IMF deals. They feel these changes may help the world move toward the Western form of free-market capitalism. Under this system, market forces alone would determine the successes and failures of economies, as well as prices for goods and services. Other forces would have little or no effect. Criticisms of Reform The push to reform Southeast Asia’s economic model has met with some resistance, particularly within the region itself. There seems to be a general consensus that some reforms are needed to improve Asia’s financial system, but many Asians are very hesitant to support the demands placed upon them by the IMF. They fear that many of these changes will reduce Asia’s power to determine its own economic policies and could result in severe financial hardship.

Many economists agree with these fears in the short-term. They have stated that that IMF reforms in Asia will mean increased bankruptcies, more bank closures and higher prices for consumer goods. Many say, however, the long-term result will justify these short-lived effects. On the other hand, some analysts also caution about trying to impose Western-style capitalism in Asia. They argue that Southeast Asia’s economic model has created several decades of remarkable economic growth. Further, Asia has been able to generate fast economic and industrial growth without experiencing a great wage gap.

In addition, unemployment in Asia has been negligible by U.S. standards. Thus, there has not been a need to spend large amounts of public funds to create a system of support for the poor and unemployed. Further concerns are that free-market reforms could jeopardize the successes previously seen in Southeastern Asian countries. Walden Bello, co-author of Dragons in Distress: Asia’s Miracle Economies in Crisis, warns radical free-market reforms may lead not to the transformation of Asian capitalism but to its unraveling. According to Bello, Asia’s government-led economic system has been a key ingredient in the region’s success. He says that reforms in the region should build on the strengths of that economic model rather than dismantle it altogether. Bello believes that the fundamental lesson of the Asian crisis is that there was not too much state intervention but too little.

He says that deregulation of the banking and financial sectors in some Asian economies during the 1980s led to increased corruption. Affects on the U.S. The U.S. was largely unaffected by Asia’s simmering crisis until October 1997, Hong Kong, a key investment center for U.S. business, faced economic risk. The Hang Seng index on the Hong Kong Stock Exchange fell more than 23% over a four-day period, which caused great concern among many foreign investors.

As stated earlier, on October 27, U.S. stock markets reacted by falling as well. They quickly rebounded, but their decline foreshadowed the impact that Asia’s economic troubles could continue to have on the U.S. Asia’s increased globalization has helped boost U.S. trade, but many economists say that it has also made the world economy more vulnerable to regional economic crises.

The main concern among U.S. investors is the possible long-term impact of the Asian crisis. Weaker Asian currencies will likely mean that Asian goods will drop in price, making them appear cheaper to foreign consumers. These products will then be more attractive, thus making the previously attractive domestic products less attractive. As cheap Asian-made goods flood the U.S. market, domestic industries could lose some business.

Job losses might result. At the same time, Asian countries may be less willing to buy U.S.-made goods because a strong dollar would make them appear more expensive to U.S. producers. That could lead to a larger U.S. trade deficit.

On the other hand, consumers might benefit from the Asian crisis since imported goods–electronic imports in particular–would become cheaper. That may force U.S. businesses to cut their prices and improve productivity in order to be more competitive. The overall effect is likely to be a positive one, that is a positive overall increase of net welfare. Conclusion While it is still unclear as to the long-term affects the Asian Financial Crisis will have on Asia, and the rest of the world, it is clear that this crisis served as an eye-opener for many parties involved.

Many negative results were experienced. It is likely that these results will only be experienced for a short time. If free market policies are followed, the long-term effects are likely to be positive, at least when society as a whole is considered. As with all things, there will be winners and there will be losers. The hope of society is that the losers lose less than the winners win, and that the winner’s gains can be reciprocated to all involved.

Economics.