Q1
9-16. A good starting point for exploring the local currencies of a region is to look at a financial newspaper, such as the Financial Times. What is the value of the local currencies in respect to the U.S. dollar at the moment? Do you think it was wise for the countries governments to let the currencies float freely in 1997? Why did they peg their currencies value to the U.S. dollar in the first place? Do you think that the link with the U.S. dollar had any effect on the Asian Crisis? Explain.
Q2
9-17. One of the causes of the Asian crisis has been traced back to the devaluation of the Chinese renminbi in 1994, which, according to some economists, put a strain on the exportled economies of Southeast Asia, and eventually made them more vulnerable to the crisis. Do you think this theory is valid? Argue your point with reasons.
Q3
9-18. In which way can export-led economies, such as the countries in Southeast Asia, make themselves more resilient and less dependent on the weakness of their currencies for boosting their exports? Choose one country and one company to illustrate your answer.
/6 PART 4 THE INTERNATIONAL FINANCIAL SYSTEM Practicing International Management Case The Effect of the Asian Crisis on Southeast Asian Corporations n the summer of 1997, after a couple of moeths fighting to Now, more than 15 years after those events, the countries in defend the value of the baht, pegged to the US. dollar, the volved look ike they have completly recovered from the downturm sovernment of Thailand decided to abandon the battle and let The price paid has been in some cases quite high, and virtually no its currency flow freely. This move marked the onset of what is comyn the region has come out unscathed, with the exception w known as the Asian Financial Crisis, which heavily affectod of China and ccononics strongly linked to it (cg. Hong Kong and economies of the region such as Malaysia, Indonesia, and Taiwan). Arguably, the lesson that these countries can leam from this is: invest in quality, streagthen the economic fundamentals, and South Korca. To this day, there are ongoing debates about the dynamics of the Asian Financial crisis. A series of causes have been pinpointed t try to reduce dependence on foreign direct investments (FDIs). as relevant. Among them were the high level of corporale debt However, the crisis had some important, lasting macroeco- consoqacnces, the most rclevant being the shift of eco- sorme of the local corporatioas (caused by the access to cheap nomic weight within the region Whereas in the 1990s, the "Asian credit they were enjoying in the 1990s). bad govenment poli tigers" and the countries gencrally known as NIEs and Japan were cies, the impact of derivatives and financial speculation, and the the focus of FDls, in the 2000s this role clearly passed to new increase in competition from China. Some economists have also emerging superpowers, such as China and India, which are now mentioned other, more indirect factors, such as the Chinese cur the new East Asian leading economies. rency devaluation in 1994, and the handover of Hoog Kong to China in 1997 Thinking Globally 9-16. A good starting point for exploring the local currencies While the affected countries tried to tackle the crisis with a series of measures of fiscal rigor, the international community decided to act to prevent worldwide contagion. The International Monetary Fund (IMFP) intervened, and poured in a first tranche of a $40 billion program to help stabilize the local currencies most affected by the economic downturn, mainly Thailand, Indonesia, and South Korea. These efforts, heavily criticized in the negion, had mixed effects and, at least in the case of Indonesia, were not successful in their aim. A full-fledged economic crisis and wide- spread riots in Indonesia led to the collapse of the Suharto govern- ment. The value of the Indonesian rupiah fell dramatically, from I USD 2,600 INR before the crisis to 1 USD 14,000 INR daring the crisis. In 2012, 15 years after the start of the crisis, the country has certainly recovered from the recession, yet the exchange rate is still below pre-crisis levels (at I USD 9,200 INR) of a region is to look at a financial newspaper, such as the Financial Times. What is the value of the local currencies in respect to the U.S. dollar at the moment? Do you think it was wise for the countries' governments to let the currencies float freely in 19977 Why did they peg their currencies' valac to the U.S dollar in the first place? Do you think that the link with the U.S. dollar had any effect on the Asian Crisis? Explain. 9-17. One of the causes of the Asian crisis has been traced back to the devaluation of the Chinese renminbi in 1994, which, according to some economists, put a strain on the led economics of Southeast Asia, and eventually made them more vulnerable to the crisis. Do you think this theory is valid? Argue your point with reasons export- Other countries, such as Malaysia, decided to oust the IMF and closed up their financial market to avoid capital flight. The then Prime Minister of Malaysia, Mahatir Mohamad, adopled a se- ries of restrictions and led the regional opposition to the interven- tion of foreign institutions. His measures proved successful in the circumstances, and Malaysia managed to recover faster than other countries from the crisis 9-18. In which way can export-led economies, such as the countries in Southeast Asia, make themselves more resil- ient and less dependent on the weakness of their currencies for boosting their exports? Choose one country and one company to illustratic your answer The consequences, however, were felt worldwide, and for years these economies did not recover to their pre-crisis levels of growth. Sone big corporations, such as the Korean Daewoo, who "The Myth of Asia's Minck,ng Alirs, 73 (m. 6), 1994, 62-78; before the crisis were considered too big to fail, were dismantled The Death of Daewoo,"Economit (www.cconomist.comiaode/233562s by their governments in the crisis' aftermath. Sarees: Joseph Stiglitz, no Lessons trom the East Asian Miracle," The W rld kuk Reseurck Cherver. I 1 (no. 2), 1996, pp, 151-177; Paul Krugman. id-233562), Angust 19, 1
