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Objectives

THE MAJOR CAUSES OF THE CRISIS

SPILL OVER EFFECT ON SPECIFIC COUNTRY:

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The most important effects of the Asian crisis on the USeconomy worked through international trade:In 1996, US trade with East Asia accounted for 30% of export, and

40% of import of goodsIn 1997 export of good and service to East Asia represented 11.9%

of U.S. GDP (only 4.8% in 1960)Capital transfer, Investments

Asian financial crisis exerted mixed effects on USemployment and economic activities, depressed somesectors and stimulated other sectors

Reduced export ( by 12% in 1998 !)Increased ImportDomestic demand boosted (lower commodities price)!Lower interest and inflation rates !

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A ccess to financing in A siay Companies in Asia tend to rely more on bank

borrowing than on issuing bonds or stocksy

Government preferred development financial bakingsystem with banks => can control and regulate whoaccess to loan.

y Well-connected with bank and government tend tohave best access to financing

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Private sector debt and poor loan qualityB orrowed short-term loan for long term projects likeinfrastructure and real estate development.

Type of borrower has shifted away from thegovernment and central banks to banks and non-bankprivate sector

Exchange rate fluctuate only within narrow band and

has been aligned with dollar

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C auses of the crisis (1)Inadequately development financial servicessector

Lack of control and sufficient regulations incapital market

Close alignment between the local currency and US dollar

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Major sectors affected (1)Creditors and investors in Asia suffered loses:

U.S. bank, pension funds, and investors suffered loses

Exporters to Asia faced declining demand:

U.S. makers of major export items (heavy equipment,aircraft, manufacturing machinery and agriculturalcommodities)

Producers of commodities used in themanufacture of products in Asia:

e.g. chemicals, cotton,copper, and rubberBusinesses competing with import from Asia facedincreasing competition and downward pressure onprices:

e.g. automobiles, apparel, consumer electronics, steel, etc.

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M ajor sectors affected ( 2 )Labor engaged in manufacturing competingproducts hurt by Asian depreciationBusinesses that sell import from Asia gained

opportunities:distributors and retailers of products from trouble Asianeconomies (e.g. Korean automobile dealers)

U.S. MNCs seeking market access in Asia,

particularly in financial sectors gain opportunities:lessened entry barriersacquisition of existing firms that needed restructuringand recapitalization at relatively low prices

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