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The Under Regulated Nature Of Parts Of The East Asia Economies Were Actually ...

The under regulated nature of parts of the East Asia economies were actually regarded by some investors as an advantage rather than a disadvantage. Regulations can be seen as adding costs to investments, although they compensate for those costs by reducing risks. All investments are carried out with an element of risk. Prior to the financial meltdown of 1997, East Asia's long periods of economic growth meant that these economies were seen as sound economies to invest in, arguably less risky than the United States or European Union economies, for instance. If the long-term implications for the East Asia regions were that lack of financial regulation would harm their long-term economic growth prospects, then it would not prove too difficult to regulate their financial institutions. Advice and guidance for the introduction of effective regulations would be available from ASEAN, the International Monetary Fund, and the World Bank. Arguably, confidence is more important than regulation for determining the financial health of any individual economy, or the performance of a region such as East Asia (Newnham & Evans, 1998, p.139). The level of government intervention and the amount of financial and business regulations varied across the region, Singapore for instance had a great deal of regulation whilst Hong Kong barely had any at all (Cleaver, 2002 p. 231).

A lack of confidence in the present and future performance of the economics of East Asia can contribute to an explanation of the financial meltdown in 1997. Stock market crashes and financial meltdowns have often been caused by a loss of confidence in the strength of economic performance. Growing fears of economic stagnation and decline usually turn out to be self-fulfilling prophecies. The extent of the damage caused by such losses of confidences can depend on how quickly confidence is regained. The underlying strengths and weaknesses of economies, and the level of foreign investment can make the difference between short-term downturns, medium term recessions, or long term down turns, medium term recession, or long term depression. The implications for the economies of the East Asia region could have been disastrous in the wake of the financial meltdown in 1997. A long-term loss of confidence could have resulted in recession or even in depression. The financial meltdown in 1997 demonstrated that the governments of East Asia could not assume that economic growth was guaranteed or that it could be sustained over an unlimited period. It also dented confidence that the individual countries could escape the implications of such a meltdown. Communist China, for instance was not isolated from all the effects of the meltdown, even the extent of state ownership of enterprises offered some protection.


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