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Government Intervention Had Prevented The Banking Systems From Developing ...

Government intervention had prevented the banking systems from developing their own proper financial controls. Some of the economies of East Asia relied upon the export of natural resources, whilst others, most notably Japan, are reliant on the import of such resources to achieve economic growth through the export of manufactured products. Japan, just like the United States, is susceptible to increases in oil prices, such as the oil crisis of 1973. There were no such problems with oil supply that could explain the financial meltdown of East Asia in 1997. However, the failure of some of the East Asia economies to diversify their exports can arguably be used to explain the financial meltdown in 1997. This is due to East Asia countries being prone to changes in global prices for commodities such as timber, cotton, rubber, and sugar which could have implications for the East Asia region as a whole. Long term decreases in such prices would reverse the growth rates of countries such as Malaysia and Indonesia with the possibility of plunging the East Asia region into recession. Recessions in one region of the global economy can have implications in other regions. Recession in the strongest economies can cause downturns in the economies of their trading partners just as strong growth can promote high growth in neighbouring states. In the East Asia region Japan and China can be seen as the main pivotal economies that strongly influence the rest of the economies. However, the export diversification strategies for the majority of the East Asia economies had been very successful for stimulating high economic growth rates. Other explanations would be better to describe the financial meltdown in the East Asia region (Siebert, 2002, p.172).
The financial meltdown of East Asia in 1997 can be partly explained by changes in the domestic politics throughout the region. For instance, there was uncertainty about the future of Hong Kong, which reverted to Chinese control after being a British colony. Fears that China would dramatically change how the Hong Kong economy was run were unjustified. When China was still controlled by Mao Zedong, those fears would have been justified, as communism would have probably been imposed. The Chinese government was anxious to emphasise that the Hong Kong economy would not be altered. In the long term the financial implications for the East Asia region of Hong Kong being part of China are good, as it strengthens the economies of both. The price for the people of Hong Kong was the loss of political freedom, although they had never experienced full liberal democracy under British rule. In Indonesia the long running authoritarian rule of President Suharto was nearing its end. Political uncertainty started to affect confidence in the economy, although there were no signs that the financial meltdown would affect Indonesia (Howard & Louis, 2000 p.


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