The East Asian Financial Crisis

The East Asian Financial Crisis - The East Asian Financial...

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The East Asian Financial Crisis: Began in 1997, affected East Asian countries like Thailand, South Korea, and several other emerging markets and had a ripple effect throughout the world as other emerging markets like Brazil were affected due to loss of investor confidence. By 1997, East Asian markets attracted half the capital inflow to developing countries due to its high interest rates. The causes of the East Asian crisis are disputed – however, several issues come into play: Many argue that the cause lay in the banking sector. Government intervention in the economy created a situation of “crony capitalism”. Banks were encouraged to forge close relationships with business in order to serve government directed production goals. These close relationships became problematic, particularly with regard to banks lending money to business. In essence, banks had non-performing loans to business – basically, bad loans that were not serviced, but banks looked the other way because of the close relationships that existed. This was particularly true in South
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