The Asian Financial Crisis in Perspective

Abstract

Developing nations across the globe have struggled for decades to achieve sustained long-term economic growth. Only a handful of nations have been able to achieve this type of economic success. This is mainly due to the current structure of the international financial system, which is designed to benefit the global financial powers such as the United States and the European Union. Despite the biases of the system against third world countries, several of them have been able to overcome it and in the process have achieved long-term growth. The countries that have been successful in achieving this growth are concentrated in the region of Southeast Asia. The success that these countries have enjoyed led to the coining of the term "The Asian Economic Miracle." The countries associated with the success can be broken down into two groups. The first of the "East Asian tigers" were Japan, Taiwan, Hong Kong, and Singapore. Following the successes of these nations were South Korea, Malaysia, Indonesia, Thailand, and the Philippines. The growth that began in the 1960s for the first set of East Asian Tigers and in the 1970s for the second group showed few signs of slowing down after thirty years of growing at an annual average rate of 5 to 6 percent. The pattern of growth quickly changed, however, on July 2nd of 1997 when the Thai baht lost 25 percent of its value in a single day. This unexpected currency devaluation scared investors, who realized other Southeast Asian countries shared the same problems. Eventually, the crisis that started in Thailand spread across the region and soon it affected countries in Latin America and Russia. The Asian Financial Crisis became the biggest economic disaster since the Great Depression of the 1930s. The questions that arose in relation to the crisis are plentiful. How did such a massive economic disaster occur unexpectedly? Did any problems exist within the affected countries before the crisis? If so, how did economists and other professionals misjudge the economic health of the region? What caused the crisis and what prolonged it? The goal of this essay is to shed light on the causes of the crisis, highlight the International Monetary Fund's role in prolonging the crisis, and then finally to show that the United States had a vested interest in seeing the East Asian countries become more vulnerable to US influence.