A large economic downturn in East Asia threatens to end its nearly
30 year run of high growth rates. It is hard to understand what these declines will actualy do to the world market. The crisis has caused Asian currencies to fall 50-60%, stock markets to decline 40%, banks to close, and property values to drop. The crisis was brought on by currency devaluations, bad banking practices, high foreign debt, loose government regulation, and corruption. Due to East Asia\'s large impact on the world economy, the panic in Thailand, Indonesia, Korea, and other Asian countries has prompted other countries to worry about the affect on their own economies and offer aid to the financially troubled nations.
The countries that are included in the East Asian crisis, known as Tiger economies, are Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. For these countries to participate effectively in the exchange of goods, services, and assets, an international monetary system is needed to facilitate economic transactions. To be effective in facilitating movement in goods, services, and assets, a monetary system most importantly requires an efficient balance of payments adjustment mechanism so that deficits and surpluses are not prolonged but are eliminated with relative ease in a reasonably short time period. The Asian crisis of recent falls into this category of inefficient balance of payments facilitated by depreciation of its currency. By competitively depreciating its currencies, Asia is exporting its deflation, its overcapacity and its lack of growth to the West, particularly to the US.
No other group of countries in the world has produced more rapid economic growth and dramatic reduction in poverty than East Asia. Korea, Malaysia, and Thailand
have virtually eliminated absolute poverty, and Indonesia is within reach of that goal. Nevertheless, this financial crisis has exposed weaknesses in Asian economies that
must be addressed if the region is to return to its high growth of recent years.
Despite the great cries of anguish we hear from bankers and corporations,
the real victims of the collapse of globalisation in Asia, are the same people who were the victims of the miracle. Their low wages, or incomes from farming, are now devalued by 25% - 55%. Millions of casual construction workers are idle across the region. And now hundreds of thousands of public sector employees and finance sector workers are being sacked as the IMF enforces government budget cuts, bank and finance company closures.
The East Asian crisis has affected almost all of the Asian nations, but the three hardest hit countries are Thailand, Indonesia, and South Korea. The panic began in Thailand in May of 1997 when speculators, worried about Thailand\'s slowing economy, excessive debt, and political instability devalued the baht as they fled for market-driven currencies like the American dollar. Indonesia\'s economy soon fell soon after when the rupiah hit a record low against the U.S. dollar. Indonesia is plagued by more than
$70 billion worth of bad debts and a corrupt and inefficient government. Thailand and Indonesia also suffer from being overbuilt during real estate booms that were the result of huge influxes of cash by optimistic foreign investors. South Korea faltered under the weight of its huge foreign debt, decreasing exports, and weakening currency.
World Bank support for East Asian governments focuses on carrying out three principal objectives: build the foundation for restoring growth and raising incomes by adopting wide-ranging reforms in the financial sector, in corporate governance and competition,
and in managing external debt. This builds on the IMF-led rescue efforts in the region; strengthen social protection for the poor and other vulnerable groups to help cushion the impact of the crisis; and improve the quality and transparency of key government institutions, including helping governments address problems of corruption and accountability.
The World Bank believes these objectives are inseparable and essential components of winning and holding public support for difficult reforms. There must be visible
help with the social costs of reform, particularly protection for the unemployed; the financial and corporate sectors must be better regulated, more transparent, and
adequately capitalized to regain the confidence of investors, both foreign and domestic. Once confidence is restored, economic growth can resume, raising incomes for
the poor in the process.
The World Bank\'s Involvement to Date
Since July 1997, the Bank has pledged some $16 billion to