Asian Financial Crisis

The "Asian financial crisis", did not solely affect the countries of Asia but also had an impact on other world economies including the United States.This paper will look at the short run effects that occurred on the U.S. Steel Industry as well as predictions of long run effects in the future.
"Asian financial crisis" started in July 1997, when speculators and Thai residents were trying to sell the baht and buy U.S. dollars, because the fixed exchange rate of the baht were pegged artificially high to the U.S. dollar. This caused the baht out of the country, and the Thai government ran out of foreign exchange reserves.As a result, capital became scarcer, the baht devalued by 20% as measured against the U.S. dollar, and interest rates on borrowed money sharply increased.Productivity in Thailand decreased, unemployment became high, and businesses went bankrupt causing the worst recession in Thai postwar history. Once the crisis hit Thailand, the prices for exports fell causing other Asian currencies to be devalued as well.In particular, Indonesia’s currency, the rupiah came under attack and had to be devalued by about 90% over the period of just a few months. The economy as a whole in Indonesia has been even more severe than that in Thailand, due to a co!
mplete collapse of the country;s financial and political systems.
The reasons why Asian governments maintained the artificially high fixed exchange rates for so long, was because they wanted to attract short-term capital from abroad to finance rapid development in these countries. Rules and regulations on financial institutions were very weak and did not protect the banks’ exposure to excessive risk by extending loans to unhealthy enterprises. The vulnerability of the financial systems resulted in an outflow of short-term capital from the system, leading to rapid selling of currency and stocks by investors.
With the rapid developme…

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