Asian Financial Crisis of 1997: Lessons Learned

Only available on StudyMode
  • Download(s) : 198
  • Published : May 2, 2013
Open Document
Text Preview
The Asian financial crisis of 1997 provided some valuable lessons about the global financial systems. What are three of those lessons? Use references and examples in answering this question. The Asian financial crisis of 1997 was a global phenomenon that acted as a fundamental learning curve for nation-states, graphic regions and ultimately the global economy. This crisis became increasingly baneful as it caused widespread economic and social turmoil to several emerging market economies, and even had negative effects on industrial economies. The effects of the crisis have raised concerns about the stability and efficiency of the global financial system as well as inquiries about the lessons learned and adopted from this event. However according to Salient Policy Lessons from the Asian Crisis: A View from 1999 (2000) ‘learning these lessons will not eliminate the onset of a financial crises, however, it is good to gain a thorough understanding of them because these crises have an increasingly high fiscal costs and thus the lessons learned will minimize the impact of the crises”. The Asian crisis has revealed that there are certain mechanisms that can be put in place to hinder the full effects of a crisis and prevent financial panic. Strengthening and implementing early system warning models is a valuable lesson that has been learned and adopted since it has the potential to avoid financial crises by identifying potential triggers which in turn prevents investor panic, another economic recession and to strengthen ones financial system. According to Could We Have Learned from the Asian Financial Crisis of 1997-98? (2011), prior to the onset of the Asian financial crisis in 1997, investors and policymakers misinterpreted some early warning signs of unsustainable lending booms, such as high corporate debt-to-equity ratios which reached 310 per cent in Indonesia and 518 per cent in Korea. Early Warning systems in the Republic of Korea: Experiences, Lessons, and Future Steps (2011) states that because of the Asian crisis, the Republic of Korea learned to adopt an effective early warning system model. Beforehand during the crisis, Korea lacked the effective structure to predict the onset of a financial crisis because their old early system warning model focused on government external finances and ignored private debt stocks (Could We Have Learned from the Asian Financial Crisis of 1997-98? (2011). Therefore in response the Korea Centre for International Finance, whose sole purpose is to operate an Early warning system and monitor the possibility of crisis recurrence, was established. Since then, there has been a widespread approach by many countries to improve the models designed to predict the onset of a financial crises and to develop policies to minimize losses, increase the recovery process, and minimize a countries susceptibility to a crisis, whether it originates internally or spreads across financial and goods markets. Overall, countries have learned that effective early system warning models are needed to target the dangers of high leverage ratios and credit growths (Could We Have Learned from the Asian Financial Crisis of 1997-98? (2011) and thus it is essential to adopt as it has the potential to minimise and avoid the full effects of the crisis on the global financial system. Due to the substantial impact of the financial predicament on global financial systems the Asian region and other countries have learned to embrace several domestic reforms and policies to destabilise the global financial system such as building vast foreign exchange reserves and implementing greater transparency, involving more and efficient data which is critical in financial market economies. This is essential as it identifies the main causes of the crisis and its outcomes, as well as open opportunities for medium-term growth. Bank regulators in Asia were obliged to adopt greater transparency and supervise lending activity more strictly as it...
tracking img