The Asia turmoil begun in the middle of summer of 1997. The problem started in Thailand when Bath(known as Thai’s
curencey) was geting weaker and weaker against US dollars. At that point, the rest of the world started to see that Thai’s
economy was starting to fall apart. Some pople predicted that the problem would not stay longer than a few months. However,
it was wrong. As manner of fact, the problem spread amongs some of Asian Countries. Even the mighty Japan was effected by
this problem. United stated of America was also effected by this problem. That was a time that the US stock market was going
down due to the fact that Many American cooporation invested in this some of Aisan countries.
Even today, the problem has not been fully recovered and who knows when.
The main problem of the turmoil is the lack of management. Each countries has all similar problem. As we found out in our
research, we noticed that banking holds the main role and the key player to the turmoil. Many privates and Government
banking loaned too many credit for a big and similar project at the same time without checking the creditor’s solvency. Of
course among the creditor also, the money supposedly . And this is, of course, the second problem of the cause of the turmoil.
Third, many creditors believe that their project will become successful without a proper preparation and planing.
Malaysia’s National Economic Recovery Plan
Causes of the Turmoil in the Region
In today’s world, large sums of money move across borders and provide more countries with access to international finance.
The daily currency turnover in the foreign exchange market in 1995 is about US$1.2 trillion, compared with an average of
US$190 billion a decade ago. The early 1990s saw the dramatic increase in the flows of private capital from the industrial
countries to the emerging countries. This was partly contributed by pension funds from the United States and Europe in search
for higher returns overseas. The amount of private capital flowing into emerging markets was US$50 billion in 1990; the figure
was US$336 billion in 1996. With greater international capital flows, financial markets become more volatile as money moves
across borders with a mere keystroke of a computer. The unusual successful economic performance in the region attracted
large inflows of foreign portfolio funds into the Asia Pacific region, which became a root cause for the currency crisis. During
the early to mid-1990s, China recorded growth rates between 9-14 per cent per annum, while Indonesia, Malaysia, and
Thailand experienced high annual growth rates that ranged between 7-12 per cent. Rapid growth rates were also recorded in
Singapore, South Korea, and Taiwan.
While there were sizeable current account deficits for some countries, especially for Malaysia and Thailand, these were the
outcome of the shortfalls of private savings to match private investment, not public sector dissaving. Foreign capital inflows
made up for the shortfall in national savings to meet the very high national investment. While the net private inflows for China
and Vietnam were foreign, direct investment (FDI) dominated, short-term inflows were substantial for Indonesia, South Korea,
Malaysia, and the Philippines. Thailand had a high level of short-term inflows of around 7-10 per cent of GDP. During
1995-96, Malaysia’s short-term capital was 4-4.5 per cent of GDP, while its FDI was at 5 per cent of GDP.
The decline in asset yields in the industrial economies prompted fund managers to invest into the Asian emerging assets, which
gave higher returns. The ASEAN countries suffered losses in competitiveness when the U.S. dollar, against which their
currencies were closely linked, appreciated against the yen beginning in mid-1995. The rapid economic growth of the
Southeast Asian economies was accompanied by rapid credit growth to the private sector and asset price inflation, including in
real estate markets and in equity markets, rising the concern that their exchange rates were not sustainable.
Weakness in the financial sector compounded the problem. The financial institutions in Thailand, Indonesia, and South Korea
were weakened by large-scale exposure to the property sector, high non-performing loans, and short-term loans that were
unhedged against currency movements. Inadequate disclosure of information and data deficiencies increased uncertainty and
adversely affected confidence. There was also the lack of transparency in policy implementation.
A brief explanation about IMF
IMF is not a charitable institution, nor does it carry out its operations at taxpayers’ expense. It operates