South –East Asian Crisis- An Important Lesson for the Global Economy

Abstract

Crises are an intrinsic feature of the market–oriented credit and financial system. Business cycles showing periods of boom and bust will continue to occur, only the intensity shall matter. An unprecedented crisis that erupted in five Asian economies: Indonesia, Malaysia, the Phillipines, the Republic of Korea and Thailand, in mid 1997-1998 raised concern about the stability of the “Global Financial Architecture.â€Â  The clear evidence emerged of a rapid and unsustainable buildup of investment in fixed assets financed by excessive borrowing. This investment-spending spree resulted in poor profitability, reflected in low and declining returns on equity and on capital employed. The severity of the crisis in the Asian region was so great that some other countries in the world – Brazil and Russia, in particular also got affected by the contagion.