The Cause Of The Asian Financial Crisis
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This is a review of the political reasons that caused the Asian Financial Crisis in 1997. The review is made on 5 papers by 5 authors on the subject.
Introduction
The Asian Crisis of 1997 and 1998 affected many of the East Asian and South East Asian countries surprised many. This was due to the fact that in the early and mid-1990s these same countries were lauded as model economies with high Gross Domestic Product (GDP). Yet within a space of a few months in mid-1997, the currency crisis become a financial/economic crisis as many of these countries currencies were greatly devalued resulting in the contraction of their economies. However, the severity of the Asian Crisis was not uniformly felt.
Many books, research papers and articles were written about the Asian Crisis from the cause of the crisis to the lessons learned. In this assignment, I have focused on political cause of the Asian Crisis and with a slight focus on why some countries were more badly affected than others.
Main Arguments
Below I have listed the papers and their main arguments that will form the basis of my discussion.
Jurgen Rudolph. 2000. The Political Causes of the Asian Crisis. In The Political Dimensions of the Asian Crisis. Select Books
Rudolph’s paper seeks to address the “considerations of how politics influences economic performance” (Rudolph, 2000) and the Asian Crisis. The author argues that the (general) lack of transparency and accountability in the government, especially with regards to the financial regulatory system, “at the very least, greatly aggravated the crisis” (Rudolph, 2000).
The lack of transparency and accountability is due to political factors such as 1) a non-democratic systems of government and weak democratic institutions, 2) corruption, collusion and nepotism, 3) inadequate electoral systems, 4) lack of separation of powers, manipulation and dependence of the judiciary and 5) the limited roles of civil society and the media. The author contends that many Asian countries have a combination of these factors inherent in their political system.
The mere presence of corruption, collusion and nepotism does not encourage transparency as matters influence by them were made through the absence of reasoning which if known by the public would not bode well for the government. A weakness in the electoral system will only aggravate things, as it would be difficult for a corrupt or ineffective government to be replaced. In fact electoral fraud and vote buying would also worsen an already bad situation.
One of the pillars of a democratic country is the separation between the executive and the judiciary. This is to ensure accountability is maintained (provided the judiciary is independent). Therefore, the lack of segregation between the two, especially when the executive can influence and manipulate the judiciary, results in less accountability due to absence of an independent body. A limited role of civil society and media to check and highlight the shortcoming of the government and its policies would further reduce the government’s accountability to the people.
Therefore, the author argues that these weaknesses resulted in poor financial systems that enable the Asian countries to be badly affected by the currency devaluation.
Bruce Cummings. 1999. The Asian Crisis, Democracy, and the End of “Late” Development. In The Politics of the Asian Economic Crisis. Cornel University Press.
Cumming’s paper seeks to answer the cause of the Asian Crisis. The author argues, “The deep meaning of the Asian Crisis therefore lies in the American attempt to ring down the curtain on вЂ?late’ development of the Japan/Korea type вЂ¦Ð²Ð‚Ñœ (Cummings, 1999).
The author’s argument goes back to the cold war days, when the world was divided into communist and democrats. In order to ensure that the communist influence did not spread further in Asia (China and Myanmar are communist countries), America вЂ?sheltered’ Japan and Republic of Korea (Korea) by providing policies that would ensure the economies of both countries will flourish. They were to be an example to other Asian countries on the benefits of becoming a democratic country. Due to this, “their states were вЂ?strong’ for their struggle to industrialize but вЂ?weak’ because of the web of enmeshment; they are semi-sovereign states” (Cummings, 1999).
The end of the cold war meant that America no longer had to rely so much on Japan and Korea to safe guard against the advancement of communist in South East Asia. Therefore from early 1990s, America has pushed for these countries to adopt multilateral economies (i.e. be more open to accept American goods and investment). However, Japan and Korea were resistant to this new form of economic policy.
Though no actual action by American was provided in the paper that resulted in the Asian Crisis, the author does state that the crisis allowed America, through the International Monetary Fund (IMF) to implement their economic model to Korea. This was done to maintain American’s hegemony in Asia, which before the crisis may have shifted to Japan. That is one of the reasons provided by the author on why America was firm in its refusal to allow the �Asian Fund’ proposed by Japan to materialise.
Jeffrey A Winters. 1999. The Determinant of Financial Crisis in Asia. In The Politics of the Asian Economic Crisis. Cornel University Press.
Winter’s paper seeks to explain the source of the crisis and the reason why certain countries were more affected by the crisis than others. The author “posit that the source of the crisis lay in systematic changes in international capitalism….but, equally important, the vulnerability of particular countries varied with the nature of their linkages and with their exposure to external capital flows..” (Winter, 1999).
Though the above statement, may be seen as an economic factor rather than a political factor, the author argues that it was the economic policy adopted by the government on the individual countries financial system that enable the crisis to occur.
In the 1990s, “the share of highly mobile commercial loan and portfolio capital flows has grown rapidlyвЂ¦Ð²Ð‚Ñœ (Winter, 1999) with many of them headed towards Asia due to the region’s high economic