To what extent was the Asian Financial Crisis detrimental for the economies of Southeast Asian

states?

This essay seeks to evaluate and assess whether the crisis of rapid devaluation of Southeast Asian
(SEA) currencies brought about unfavourable circumstances for SEA economies. Following the Asian
Financial Crisis of 1997, SEA states on one hand suffered from declining rates of economic
development, yet conversely attained long term benefits of economic reforms to boost sustainable
growth rates. In the immediate aftermath of the crisis, the ensuing speculative attacks of SEA
currencies resulted in most SEA state to plunge into recession, impeding on their economic progress.
The SEA governments then intervened by introducing structural reforms to both resolve the crisis
and diversify the economy to achieve more stable growth. However, this was not the case for all SEA
states due to the differing impacts upon their economies. Henceforth, it is largely valid to state that
the Asian Financial Crisis of 1997 was detrimental for SEA economies in the long run. Overall, this
essay will analyse why the permanent loss of currency value and the reversal of the Southeast Asian
economic miracle leads to this in spite of the converse impacts of reforms.

The AFC had detrimental short-run effects on the macroeconomic progress that SEA economies had
been experiencing prior.Before the AFC, SEA economies experiencing economic growth rapid inflows
of hot money & capital investment thriving economies. AFC saw the currencies of many countries
rapidly weakening. Mass exodus of local and foreign investors due to unfavourable conditions. High
unemployment levels. Hence the AFC marked the first time after a long period of economic success
that the economy suffered so drastically. Severe downward pressure on currencies of SEA countries:
1998: Indonesian rupiah fell 72 percent against the American dollar, Thai baht fell 52 percent,
Philippine peso 41 percent, Malaysian ringgit 45 percent. Having grown by an annual average of 9.6%
in the five years preceding the crisis, the Malaysian economy contracted by 7.4% in 1998. Therefore,
because it had such severe immediate impacts on the economy, marking a first-time negative change
in the economic positions of such SEA states.

The AFC was detrimental since SEA economies were still unable to achieve full economic recovery
due to the worsened economic situation of heavily weakened SEA currencies. AFC crippled the
economys ability to recover in LR. Governments faced constraints in recovering private
sector.Further loss in confidence in their economy.Damage so severe that they cannot recover to pre-
crisis levels in a short time period . Thailand: A sharp decrease in the value of the baht abruptly
increased foreign debt, undermining financial institutions. Many were sold, in part, to foreign
investors while others went bankrupt. As a result, the country's GDP dropped from THB3.115 trillion
at the end of 1996 to THB2.749 trillion at the end of 1998 and did not achieved positive growth till
1999. Indonesia: By November 1997, rapid currency depreciation had seen public debt reach US$60
bn, imposing severe strains on the government's budget. As such, in 1998, real GDP contracted by
13.1% and reached its low point in mid-1999. Therefore, the trend of economic contractions in
affected SEA states only worsened their capabilities to make a recovery. This ensued from the drastic
damage made to their economies in the short run which completely drained their resource to the
extent that they had to rely on aid. The resulting rise in debt, further widens the disparity between
the economic circumstances post-crisis and pre-crisis. As such, it ultimately implied that SEA
economies had their economic miracles permanently reversed within the few years following the
crisis considering the extent of resources required.

The AFC was not detrimental to SEA economies as government intervention in the crisis helped to
introduce new reforms that strengthened financial regulations. Government policies were
implemented to maintain the financial stability of the economy. This eliminated the root causes of
the crisis such as corruption and lack of government intervention. The resulting new structure where
the economy is more regulated led to a more stable growth in SEA economies. The Thai government
in 1999 implemented economic reforms based on IMF-guided neo-liberal capitalism. It pursued strict
fiscal policies (keeping interest rates high and cutting government spending), enacting 11 laws it
called "bitter medicine" and critics called "the 11 nation-selling laws". The Thai government and its
supporters maintained that with these measures, the Thai economy improved with its first positive
growth in 1999 since crisis. Economically, Singapore was quick to embrace the new economy of
globalization, moving to extend economic liberalization and adopt measures to enhance the financial
sector and sign up for greater transactional transparency.And though the 1997-1998 financial crisis
in SEA affected Brunei less than most of its neighbours, the state did not emerge entirely unscathed.
The crisis gave renewed impetus to attempts to diversify the economy and lessen dependence on
petroleum products, which have contributed historically over 60% of GDP. In Indonesia, the
Indonesian Bank Restructuring Agency (IBRA), set up in January 1998, became a powerful agency
that undertook an integrated and comprehensive series of activities consisting of matters such as
bank liability programs, the recovery of state funds, bank restructuring, bank loan restructuring, and
shareholders settlements.