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Impact Of The Asian Financial Crisis In 1997 And Effect To Latin America

1898 words - 8 pages

Impact of the Asian Financial Crisis in 1997 and effect to Latin America

In 1997, the Asian Financial Crisis spread rapidly all over the Asia and affected almost all the economies in the world. Prior to the Asian Financial Crisis, the Asian countries such as Thailand, Malaysia, South Korea, Indonesia, Hong Kong and Singapore experienced a remarkable growth in the economy that was considered the highest in the world. These Asian economies increased by a notable proportion of 6 to 10 percent annually in the GDP. However, what had been regarded as an Asian miracle seemed to crumple down rapidly 1997 when these Asian countries were faced with a severe ...view middle of the document...

Thailand was the first country that experienced the financial crisis after the financial meltdown of the Thailand baht following the government’s move to float the baht. Thailand had accumulated a considerable amount of foreign debts making the nation bankrupt prior to the collapse of the currency. As the financial disaster increased several countries in Asia and experienced crashing currencies and diminished stock markets while the private debts increased significantly. The financial crisis severely affected the economies of Indonesia, Thailand and South Korea while the effects of the crisis spread evenly across the globe and almost all the countries that trade with the Asia nations experienced the effects of the crisis (Haggard, 2000).
The Asian financial crisis spread swiftly across the world economies through Russia, Brazil and finally to the Latin America as a result of financial contagion. What started as a financial crisis in Asia quickly spread over to Latin America, particularly in into Brazil and it swiftly enclosed the entire Latin America continent. The economy of Brazil had put in place economic policies that resembled the policies in the East Asian nations that maintained high interest rates so as draw foreign capital and also defend the fixed exchange rates against the dollar (Hunter, 1999). As a result, this resulted in a huge inflow of unstable capital and this increased Brazil’s susceptibility to external financial challenges from any form of financial crisis.
Impact of the Asian Financial Crisis on the Latin American Economy
During the peak of the Asian financial crisis, the Russian financial crisis enhanced the fears concerning the viability of the economy of Brazil and as a result more US$20 billion was drained from the country. Regardless of the negotiations for support grant from the IMF and the United States Treasury, the monetary drainage persisted and Brazil was forced to devalue its currency. As a result, the Brazilian government authorized the real to float, while it abandoned linking its currency to the U.S. dollar. The financial crisis in Brazil spread out rapidly to other nations in Latin America and as a result several billions of dollars were drained from these countries and this hindered the trade exchange with the United States. As a result, the nations in the Latin America experienced one of the nastiest economic recession that was mainly fuelled by the Asian financial crisis. The effect of the financial disaster was predominantly severe in the Latin America’s small economies, for instance Bolivia, Uruguay, Ecuador, Chile and, Argentina and Colombia (Hunter, 1999).
Petti (2001) argues that financial shocks can move rapidly throughout the nations within similar regions as it was revealed by the Mexican peso disaster that occurred in the year 1994. Similarly, the financial crisis that affected the Asian countries proved to be a regional financial crisis and it threatened geographically distant vibrant...

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