Will Speculation Lead to the Fall of Asian Economy?
Will Speculation Lead to the Fall of Asian Economy?
The enduring speculation on the economic crisis in Asia that began in early 1997 with an upsurge of most economies in the region affected the way things were going on within the region and internationally. Immediately after the Second World War, there were increased global repercussions that impacted negatively on the policy making and exchange rate management within the Asian countries. This resulted in too much speculation on the looming financial crisis that was to come into play in the region. This paper will hence discuss the role of speculation in bringing up the past Asian crisis. It will also make an analytical perspective of how the current market situation was affected by the speculation on the crisis. By looking at the economic situation in the region at the moment, the paper will compare and contrast the past and the present economic circumstances in Asia.
Origin of the speculation
The speculation was that more and more western canons would take sides with small economies within the region to cause an economic gush throughout the region. However, this was not to be the case because within Asia itself, the speculation gave rise to unresolved matters regarding issues such as; practices and fundamental values of Asian societies as a whole, explicit and implicit universalistic free-market capitalistic incitements and Asian ways of managing economies. The origin of the speculation on the Asian crisis is directly linked to the negative conceptual theory that was spread not only by stronger countries such as Japan and China. Increased shortcomings in corporate governance and political shortcomings severely affected countries including Malaysia, Korea and Indonesia during the period of the crisis. (Krugman, 2000)
Within most of these countries, the speculation resulted in overvalued exchange rates due to increasing dollar value hence causing a decline in long-term capital inflows. What was so adverse about the negative speculation was that panic was gripping the financial sectors of most Asian economies in terms of;
Depletion of foreign exchange reserves
Inadequate financial expertise because all professionals were up and together in spreading the speculation
Short term dependence on foreign debt especially the U.S.
Overextended credit especially on prudential regulations within the financial sector
Domestic asset bubbles and excess capacity of local borrowers
The speculation was also very contradictory because there were concerns that the western world was skeptical and was using the IMF to implant American propagated universalistic approaches to the region. The business leaders and the Asian governments responded with a doctrine of political democratization, private enterprises, free markets, and international openness as counter measures for economic and social prosperity. (Krugman, 2000)
Current Asian markets
As history dictates, India and China were relatively the best of the world economies centuries ago, and that is why many people moved in to discover deep fascination for the continent. All these however changed at the start of the economic crisis in the region immediately before the 1996. With strategic policies in place, most of the economies of the country gave in to improved but internationally accepted approaches to redeeming the financial economies of the country. In fact, the current Asian tigers which comprise of China, Singapore, India, Japan and Taiwan both, offer competitive markets to the western world. Taking an example of a country such as India which has a huge population that would mostly likely give an advantage to it over other countries as it offers cheap labor to the country. (Krugman, 2000)
In addition, another issue that is currently coming up as a result of the speculation is the Asian politics. The politics of the region has been undergoing turbulent times resulting in lack of general stability of the region and poor democratic space. It is predicted that if the political and social disparities are not addressed now, the Asian crisis of 1997 may come back and cripple the already booming economy but with the current developments, this may not happen. Counter actions by many governments in the region has helped boost the region’s economy and currently there is a magnified market confidence especially for foreign investments abroad and also for those people who are wishing to invest in the region. With over 4 billion people in the region, there is a huge market potential for foreign investments that would help shelve the already fragile speculation.
The Chinese and Japanese capital flight flow has been catching international attention with many multinational companies wishing to draw partnerships with companies in the region especially those dealing with oil exploration. Crossing the borders to Malaysia where the Prime Minister, Mahathir Mohamad has been verbally attacking foreign currency speculators who have aggravating issues of austerity policies, open capital markets, IMF policies and other growing political divisions (Ravi, 1999). The country’s financial minister has also had controversial bailouts with the prime minister especially concerning regional interaction and more specifically economic friction with Singapore and offering companies which are politically correct with the government. All these speculations have led to increased nervousness among the country’s and foreign investors.
Moreover, most of the Asian economies are beginning to play an important role in promoting the global economy that is why most countries in the Asian region are getting rid of the speculation. As a matter of fact, current performances of the stock markets are an indication of how the region is important to the world’s economic development. With a floating exchange rate, private sector business actors, limited domestic asset bubble, manageable foreign debt and experienced economic managers, the region has proved beyond the negative speculation that it can withstand globalization, modernization, changing world markets and diversity in the world. With change in policies and increased IMF funding, there has been a growing market confidence that has been inspired by reform programs and strategic partnerships. (Krugman, 2000)
In my opinion, the current state of affairs has aptly taken the Asian region to a different level. This level may not therefore slip back and allow future speculative situations to occur especially given the fact that the economic growth of the region is improving on well. Asian crisis is no longer very precarious in terms of its base on the speculation which has in the past rocked it. Since the crisis is believed to be market psychology and technology related, the probability of future occurrence of the crisis is certainly slim. Many other views maybe expressed here which expound that abolition of monopolistic entities, reliance on IMF and avoiding external debt borrowing could be the secure ways of approaching a similar situation in future. My opinion is that governments would definitely be forced to manage their macroeconomic policies properly with a view to meeting the expectations of the global world.
Although my opinion is subject to criticism, the real lender-borrower relationships may changes or swing this position. Nevertheless, with the current advancement in market growth, none of the countries may experience a situation similar to that of 1997/98 in future. When it is remembered that investors withdrew their money from financial institutions when there was depreciative pressure on currency values and credit crunch, the governments were forced to raise domestic interest rates in order to stabilize the economy and this is a situation which may not happen in future. (Ravi, 1999)
The future prospects of the region are superior and very promising in terms of economic expansion and more importantly the issues of negative economic speculation. What’s more in terms of domestic politics and policy is that the future prospects of the region are touted to be the most successful. With reduced dependence on external economic developments, the region is expected top match the western and U.S. economies by far. With an anticipated slowdown in economic growth of the United States and other countries in Europe, the continent is particularly pressed for good development prospects in future. There are expectations for increased demand for electronic, telecommunication and manufacturing sectors and especially for computer spare parts. The future looks particularly bright for countries such as Philippines, Taiwan and Malaysia especially in these three sectors as long as the U.S reduces its current account deficits to allow for harmonization in exchange rates. In this case, the export market will be more liberal and universalistic in that the region’s current account surpluses may lead to reduction of imports and protectionism. (Ravi, 1999)
As a final point, if the current market potential of the Asian region is anything to go by, there is little possibility of the region experiencing another economic crisis as long as the allocation of capital and improved industry policy are implemented effectively. What is presumed to have caused the 1997 financial and economic crisis is what most governments are now avoiding through the drafting of the necessary structures to run the economies of the region (Krugman, 2000). As recent research indicates, there are clear perspectives of the Asian crisis which has portrayed macroeconomic aggregates with reference to regulated interest rates, strength and recovery of the economy, exchange rates and the GDP growth rate. Many economists portray the experience of the Asian trajectory and U-Shape recovery styles to be the secure way to improve not only the world economy but also the economy of the world. While there are pessimists and optimists around the comparison and contrasting of the pre-Asian economic crisis and post-Asian economic crisis. (Ravi, 1999)
The Asian economic crisis was believed to have been triggered off by unstable exchange rates, increased foreign debt, lack of investment confidence and more importantly the speculation that the Asian economy may not strike significant growth. The speculation originated from the western countries and American States as alleged by the Asian governments. Consequently, the crisis had significant macro and micro-level implications with marked reductions in currencies, asset prices, stock markets and social life within the region. Since a lot of businesses collapsed, more people were living below the poverty line for the two years of the crisis. My opinion is that, with the current improvements in regional and global economies, there are little chances that the crisis may occur again in future.
Krugman, P. R. (2000): The Return of Depression Economics, W. W. Norton & Company Publishers, p 46-127
Ravi B. ((February, 1999): 1998-2000; Stock Market Crashes. iUniverse publishers, p 90-134