ASIAN FINANCIAL CRISIS

Reading this article brings me back to the unpleasant memories which occurred 15 years ago in the month of July. That time Peso suddenly depreciated by more than 10 percent in a single day and the depreciation further continued in the days to come. Panic suddenly gripped the financial sector and days later the panic spread like a domino effect into other sectors such as the property sector and import sector. The last time the peso depreciated by double- digit percentage was during the political crisis of the Marcos era which began when the late Senator Benigno Aquino was assassinated.
What was so unusual about this economic crisis was that it was not limited to a specific country but it spread like wildfire from one country to another within the Southeast Asian region. I remember this crisis began in Thailand and that I was reading the business section of Manila Bulletin and one of the headlines was the sudden depreciation of Thailand Baht against the USD. Little did everyone know that a few days later our Philippine Peso would suffer the same fate. Had I known I would have converted all my pesos into USD. Many of the leaders in the Southeast Asian countries, notably the then Malaysian Prime Minister Mahatir Mohammad blamed the Asian financial crisis to currency speculators. Mahatir specifically single out US financial wizard George Soros as the one who was to be blamed for the crisis contagion. Allegedly, Soros speculated heavily against the Malaysian Ringgit and other affected Malaysian currencies. Thus in a matter of days, these Asian currencies plunged against the US Dollars.
Should we really blame the market speculators for the cause of the financial crisis in Asia in 1997? According to the author of the article, we should not blame the currency and equity speculators. I agree with him that the Asian Crisis was primarily caused by the weak fundamentals in the economies of the affected Asian countries. The market speculators merely saw an opportunity to make huge profits by taking advantage of the weakness of the economies in some Asian countries. In other words, the economic fundamentals of a particular Asian economy was so strong that even market speculators could not successfully attack the economy of a certain country.
In the case of Thailand where the Asian financial crisis began, the author pointed out that the Thailand economy started to weaken when countries such as China and Vietnam began to attract investments. Further the economic growth of Thailand shifted from being production- driven to consumer- driven due to the economic prosperity experienced by the Thai people a decade before the Asian crisis. Consumption of luxury items and investment in real estate properties took a big leap. However, when Thai economy slowed down, the people were caught in huge investments in property sector that were largely financed by the banking sector. Likewise, the high demand for luxury goods in the past years caused their currency value to dwindle down. When foreign speculators saw this phenomenon they knew it was just a matter of time before the Thai economy burst. Therefore they started to shift their investor away from the Thailand currency and equity markets. The same phenomenon may be said with the economy of the other countries in the Southeast Asian regions such as the Philippines, Malaysia and Indonesia.
To conclude, I would say that the Asian financial crisis was because of the weak economic fundamentals of the affected countries. The speculators made matter worse but we cannot blame them because in a free economy we can do whatever we want to create as much profit as we want provided they are within the legal bounds.
In my humble opinion, a moral lesson for the government should be is that if you want to avoid the economy from undergoing this same tragedy--particularly with the currency---is to make sure to manage the economy well. It would also help to accumulate high foreign currency reserves to counter any speculative attack on the currency. In the similar event that happened to the Hongkong dollar, which successfully repelled attacks from foreign speculators because the HK government tapped into their more than 1 trillion dollar reserve of their mother country, the People’s Republic of China.