Financial Crises: The Asian Crisis

The dominance of mercantilism and the rule of money in Europe led to the corruption of the Political Economy through the creation of microeconomics.

Political Economy had the interests of the whole society in mind. Microecnomics only had the interests of the businesses and investors.

Microeconomics was later supported by Macroeconomics from Keynes who enshrined the love of money. This led to the dominance of state-controlled interest rates through the financial system as a means to control the economy.

The problem with the financial system is that it is not based on anything real. Instead, it is based on the fluctuating feelings of people. Human feelings follow a template based on a person’s position in space-time.

This is why investing and speculating, though inherently random, can be influenced by marketing and propaganda.

The Asian Crisis: Deregulation Leading to Currency Speculation

The propaganda in the 1990s was liberalization. This was because the Soviet Union fell in 1991 and there were new opportunities for money-making.

The ex-Soviet countries still needed 2 decades to change their mentality to be worthy of investments. But Southeast Asia was now free from the Communist wave.

So the IMF pushed Southeast Asia to liberalize their financial industry to allow the entry of foreign invvestments.

• In Singapore, this led to a new round of infrastructure development
• In the Philippines, this began a new wave of privatizations
• In Thailand, this opened up the country to investments, expats, and tourism
• In Indonesia, this led to new economic development in Jakarta
• In Korea, foreign ownership was increased

The problem was that the financial deregulation caused too much speculative inflow – there was a lot of command of work, without work being done.

The sudden inflows distorted the real currency values. This scheme was perfected by George Soros earlier in 1992 as Black Wednesday by attacking the British pound.

This began with the Thai baht and then with the Malaysian ringgit. The Philippine peso was also affected to a lesser degree.

In contrast, the Singapore dollar was already expensive and Vietnamese dong was state-controlled so these currencies were not so much affected.

So the Asian Crisis was a flawed deregulation that led to currency attacks. It is the Black Wednesday for Asia.

Unlike the 2008 Financial Crisis which had many warnings, the 1997 crisis took many by surprise.

The Asian Crisis caused:

• currency controls in Malaysia
• the rise of Thaksin in Thailand
• the closure of many companies in Korea
• the fall of Estrada in the Philippines
• riots in Indonesia and the fall of Suharto