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All Economies Go Through Stages Of Economic Growth, Although Those At The ...


All economies go through stages of economic growth, although those at the lower stages are at a disadvantage compared to the more developed ones (Bannock, Baxter & Davis, 2003, p.110).
Another explanation for the financial meltdown in the East Asia region was that most of the countries within the region had fixed exchange rates. Under certain conditions fixed exchange rates can be conducive to economic growth. The East Asia countries that used such a system believed it helped increase trade within the region and with the United States. Provided governments are flexible enough to consider changing fixed exchange rates their disadvantages can be kept to a minimum (Bannock, Baxter & Davis, 2003, p.130). Fixed exchange rates work best when all the economies with the system have similar rates of growth and when they are all converging towards each other. Overvalued currencies can be harmful to economies as they make exports more expensive and imports cheaper. Currency speculators target overvalued currencies as a means to make instant amounts of profits, such speculation, however means governments are forced into de-valuations, businesses collapse and people lose their jobs. Once one country in a fixed exchange rate system devalues, others are forced to follow. This is what happened to Thailand in 1997 (Cleaver, 2002, p.201).
There is also an explanation of the East Asia crisis based upon how investments and loans were used in the economies of the region prior to 1997. Originally foreign investors had tended to invest their funds into the emerging industries and enterprises. Countries such as South Korea, Indonesia, Hong Kong, and Singapore had proved adept at attracting investments to their industrial and business developments, investments that drove growth and modernisation. In fact these countries were seen as ideal role models of economic development by the International Monetary Fund and the World Bank due to low rates of international debts and high economic growth rates over a long period (Radelet & Sachs, March 30 1998 p.1). However foreign investments began to shift away industries and businesses towards property and land sales. That shift in how foreign finance was invested occurred because the industrial section of the East Asian economies was now enjoying the spectacular growth rates of the 1960s and the 1970s. Investors turned their attention towards property and land developments as they promised a higher rate of return and profits than investing in industries and businesses. However the property markets were not as stable or risk free as the industrial and business sector. High property prices attracted foreign investments and loans to companies and individuals hoping to make their fortunes.


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