The financial crisis in asia and the public policy responses

During the decade prior to the Asian financial crises, countries in the region like Indonesia, Thailand, South Korea, Japan, Malaysia, Singapore, and Philippines were experiencing an unprecedentedeconomic growth. Exports growth in these countries was between 12% and 18% annually between 1990 and 1996.
The wealth created by this dramatic increase in exports translated into an investment boomin residential and commercial property, industrial assets, and infrastructure. The value of real state started to increase and this motivated an unprecedented building boom, much of it financed byheavy borrowing from the banks. Governments also embarked in massive infrastructure projects. Much of this borrowing was in USD, at the time it was an smart move because the currencies in the region waspegged to the dollar and the interest rte was lower on dollar borrowings, all this if governments were able to maintain their currencies pegged to the dollar.
Massive investment in industrial assetsand property, often made on basis of unrealistic projections about future demand conditions had created excess capacity, for example, demand for semiconductors declined as the number DRAMsmanufacturers fell 90%. Real state is another good example, by 1997 an estimated of 365000 apartment units were unoccupied in Bangkok, and by the end of the same year another 100000 were scheduled to becompleted.
This Excess capacity and the drastic reduction in output prices left the companies in a very difficult situation to service their huge debt.
A key element that added to the puzzle of the Asiancrises was the huge demand for foreign goods to supply for the investments in industrial capacity, infrastructure, and real state, this created a considerable deficit in these countries currentaccounts making it every time more difficult to maintain their currencies against the dollar.
The crisis started in mid-1997 in Thailand. Developers could not sell their commercial and residential...