The Asian financial crisis
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Contents:
Page 1 Contents page.
Page 2 Introduction and Analysis.
Page 3 Analysis.
Page 4 Analysis and Conclusion.
Page 5 Appendix 1 - A number of graphs to show the gross domestic product values from 1996 to 2000 for Korea, Thailand and Indonesia.
Page 6 Appendix 2 - Two graphs to show levels of debt in the Indonesian economy.
Page 7 Appendix 3 - An aggregate supply curve to show the effect of a fall in full capacity output on price levels.
Appendix 4 - A graph to show the current account balance of Indonesia between 1996 and 2000.
Page 8 Appendix 5 - Select economic indicators for Indonesia and other East Asian countries.
Page 9 Bibliography.
Introduction.
The Asian financial crisis was triggered in April 1997 when the depreciation of the Thai baht caused a contagious effect on the currencies of Malaysia, Indonesia, the Philippines and then South Korea. This soon led to a region-wide economic contraction in which GDP crashed in one country after another1.
The economic impact of the Asian crisis on Indonesia was dramatic. In 1998 there was a jump of 60% in the consumer price index; a fall of 24% in real per capita income causing a downward multiplier effect on the economy; a 15.9% decline in employment in the construction sector and 9.8% decline in the manufacturing sector. All of these decreased total GDP. Consumption demand and investment demand were down as inflation rose,2 and unemployment grew.
Whether the causes of the crisis were internal weaknesses and wrong decisions made by Asian economic players, or the volatility of financial markets and the lack of regulation by government; the Indonesian economy was forced into a recession.
I will investigate the effect of the Asian financial crisis on the Indonesian economy as a whole and how it has managed to recover so far.
Analysis.
The Asian crisis first emerged in Thailand in 1997 as the baht came under a series of increasingly serious speculative attacks and markets lost confidence in the economy. These difficulties stemmed primarily from a combination of macroeconomic imbalances, external developments, and the weakness in financial and corporate systems. The external imbalances were caused by strong private capital inflows and high private investment rates, and were exacerbated by the appreciation of the U.S. dollar to which the currencies of the countries relied on. This decline in confidence had a knock-on effect on levels of investment by businesses. This decline in investment caused overall GDP to fall.
The floating of the Thai bath in July quickly put pressure on
