What were the main causes of the East Asian financial crisis?

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MSc Development Studies 2003/4

Module: Images of Development

What were the main causes of the East Asian financial crisis?

The East Asian financial crisis of 1997 represented a major interruption in the rapid economic and social development enjoyed by much of the region in the decades leading up to it. In less than a year, some East Asian economies went from being examples of successful development practice to a situation of economic stagnation and decline. Growth rates that had averaged 8-10 per cent per year over many years turned negative, economies that enjoyed continuous high employment and experienced labour shortages suffered from rapidly rising unemployment levels, and stock market assets lost half their value. In a region where growth was dubbed 'miraculous', economies became structurally unstable and needed rapid intervention by international agencies such as the IMF (UNCTAD, 1998). The crisis arose from the large scale shift of funds out of domestic financial markets in the region, starting in Thailand (IMF, 1997). The effects of the financial crisis are still having an impact not only in the region but are also reverberating around many other parts of the global economy.

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