East Asia Economic Crisis

The East Asian economic crisis is the most crucial economic event in the region of the past few decades. The differences of views are being debated in academic and policy circles and reflected in the media. As an Asian, I knew that this crisis had a big impact on Asian economy, so as my book review, I chose chapter 4, Ў°The East Asia CrisisЎ± to learn more about this big economic event specifically. This chapter is divided into three main contents. First, the author, Josepf E. Stiglitz, explained about how the crisis worsened. Second, he mentioned mistakes of the IMF to solve the economic problem in Asia. Third, he referred to its recovery and the effect on the future. The author criticized the IMFЎЇs policy and its viewpoint. Overall, I agreed with his point of view about the economic crisis in Asia and the IMFЎЇs policy. In my book review, of the information that the author mentioned, I will focus on the starting point of the Asian crisis and two mistakes that I want to further analyze

Many of Asian countries have grown faster and reduced their poverty than any other region of the world. People called this economic remarkable development Ў°The East Asia MiracleЎ±. Unfortunately, from the beginning of the collapse of Thai baht, the miracle was finished. According to the address of the IMF, the reason that Asia faced such a crisis was due to corruption of the Asian nationsЎЇ institution. I agree with this opinion that the IMF mentioned. For rapid economic growth, many Asian countries needed the cozy relationship between the politics and business. The government supported specific companies to grow faster and easier than other companies by giving illegal opportunities. These companies that benefited from the government also supported the politicians to keep their privileges. In my opinion, because of this cycle, the Asian economy reflected a bubble economy that led this serious crisis.

As the authorЎЇs opinion, even though the IMF supported money to sustain the exchange rate, it was not the solution for the Asian economy. Actually, it was a part of the problem. Because of the IMFЎЇs severe criticism, the capital outflow was exacerbated. In the macroecomic class, I learned about how the capital flow affects the economy. Investment is financed by net capital, so the capital outflow means the economy suffers from the lack of capital for investment. Lower investment leads to slow circulation of the economy that making difficult to recover from a recession. I guess the credit depreciation of the Asian countries induced bank run that led capital outflow in short term. Like thousands of falling domino, a great numbers of banks have gone to the wall in this recession. The Asia was in panic with this series of banksЎЇ bankruptcies. As a person who is eagerly looking for water and dying by the dry well, many firms were also on the verge of bankruptcy. The IMF should have better considered its negative effect before addressing the credit depreciation of the Asian countries.

Another mistake the IMF made was reconstruction of the financial system. The financial system plays a central role in circulation of the economy. If the bank cuts back their finances, companies reduce their productions. Lower productions yield lower profits. As decreasing the profit, many companies go into bankruptcy. It means many companies can not pay back their debt to the bank, so the bank cut finances further. The economy gets bogged down by this recession. Because of the importance of the financial system, the IMF decided to reconstruct the financial system in Asia by promoting the merger and acquisition.