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The Situation In East Asia At The Start Of 1997 Provided A Prime Example Of A ...

The situation in East Asia at the start of 1997 provided a prime example of a speculation bubble set to explode. Such speculation bubbles are built upon unrealistic and overoptimistic expectations of continuous growth and ever increasing profits. Confidence is a major catalyst for economic growth and progress, yet once confidence has gone it can bring about economic crisis and recession. Once confidence is lost desperate remedies are sometimes required to restore it. The overoptimistic confidence in the continuing economic growth of the East Asia region were shattered by the devaluation of the Thai currency, an event that induced panic amongst investors and the governments of the region alike. The Thai devaluation burst the bubble in the East Asian economies. Decades of hard work and sound investments had been put at risk because investors had gambled too much on the property and land boom continuing and had fuelled that boom by unwise and over extensive borrowing. In other words it was the high levels of private debts rather than high levels of government borrowing that brought instability to the East Asian region. Arguably there was a financial meltdown in waiting that nobody noticed and nobody attempted to prevent. Any event could have caused the crisis before or after the Thai devaluation (Cleaver, 2002 p. 201).

Implications of the financial meltdown in the East Asia region in 1997
So far the implications of the financial meltdown in the East Asia region have been mentioned in general, when putting forward explanations for the crisis in East Asia. The financial meltdown in East Asia had had political, social and economic implications for the region. Short-term implications of the crisis included the financial losses of businesses, investors, and individual shareholders. The crash led to the loss of billions of dollars worth of stocks and shares. The financial meltdown brought bankruptcy to top businesses and individual investors and threatened profitability of other businesses. Crashes lead to unemployment and increased poverty.
Other implications of the financial meltdown of East Asia in 1997 included increased financial burdens for the governments of East Asia. Economic crashes can have undesirable costs and implications for governments. Tax revenues and earnings from exports can fall alarmingly, whilst governments could do with the extra revenue to deal with the costs of unemployment and avoid increased borrowing. Recessions can make it more difficult for governments to borrow money from foreign sources, whilst increasing the debt burden of countries due to having to pay higher rates of interest.


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