Asia's contagious financial crisis and its impact on Korea

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Asian countries have, from 1965 to the early 1990s, shown remarkable growth performance. The recent financial crisis, however, has brought disastrous effects on these growing economies. The region has been suffering from high inflation, massive unemployment, and large drops in growth rates. The major cause of the crisis can be attributed to the international financial markets. International financial institutions lent without serious examination of the borrowers' ability to repay. In this regard, the ratings agencies were also responsible for the worsening of the crisis. Their ratings did not give correct signals to the lenders. The borrowers' speculative activities and their subsequent failures were a direct cause that led to the crisis. A second cause lies in the structural problems in these economies. There are still covert dealings between government officials and businesses, and these economies lack transparency. These deficiencies greatly distort allocation of resources in the economies. There should be a global risk-management system to prevent such a crisis from happening again. This risk-management system would give an early warning signal. Creditors should coordinate their efforts to resolve the liquidity crisis in the Asian countries. Coordinated loans and partial forgiving of debts will be helpful to both debtors and creditors. © 1999 Elsevier Science Inc. All rights reserved.

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Journal of Asian Economics

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