ASEAN countries in the mid 1997 were majorly affected by the economic crisis called as EAST ASEAN CRISIS due to the fast decrease in the value of Thai Baht against US Dollar which spread quickly like wildfire in the other countries such as Malaysia, Indonesia, Hong Kong, Republic of Korea , The Phillippines , Japan, Vietnam, Australia, Singapore etc. The GDPs of these economies contracted , much affected was Indonesia. There has been a chain reaction of the crisis.
The below are reasons for the same:
1 : Current account deficits.
2: Too much of short-term borrowings
3:Poor lending policies of the banks
4:Over investments and low transparency
The cheap labor in Thailand got investments from Japan and other countries.The Fixed exchange rate attracted more of investments and FDI resulted in over expansion of the real estate sector which had brought down the prices drastically. The theory of demand-supply applies here since Thai labor was in demand prices shot up and it became costlier which resulted in lesser exports and imports increased due to which current account deficit occurred. Then the common perception was that Thai baht would lose value and people converted the same into dollars and the crisis began since the money had to be devalued and the same got spread across the nations.
The below are reasons for the same:
1 : Current account deficits.
2: Too much of short-term borrowings
3:Poor lending policies of the banks
4:Over investments and low transparency
The cheap labor in Thailand got investments from Japan and other countries.The Fixed exchange rate attracted more of investments and FDI resulted in over expansion of the real estate sector which had brought down the prices drastically. The theory of demand-supply applies here since Thai labor was in demand prices shot up and it became costlier which resulted in lesser exports and imports increased due to which current account deficit occurred. Then the common perception was that Thai baht would lose value and people converted the same into dollars and the crisis began since the money had to be devalued and the same got spread across the nations.
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