Asian financial crisis affected to Asian countries such as Thailand, Philippine, Indonesia, and Korea and so on.
The economic of Thailand in 1997/98 was the period of crisis and other sectors was melt down such as industrial product and so on. Before the crisis Thailand liberalized financial inflows and banks borrowed in dollar. But it did not hit their position because they were no exchange rate risk. Now let’s me review some point about Thailand’s economic in period of crisis. The GDP of purchasing power parity was $525 billion and the GDP of real growth rate was -0.4%. Moreover, the GDP of composition by agriculture was 10% industry was 28.7% and services were 61.3%. Anyway, the inflation rate of consumer price index was 5.6% and the total of labor force was 32.6 million. In additional, the budget of revenues was $24 billion and the expenditures were $25 billion including capital expenditures of $8 billion. While this industrial production growth rate was -15% and the total value of imports was larger than exports. For instance the total value of import was $73.5 billion and the total value of exports was $51.6 billion. And Thailand had the debt of external was $90 billion. The exchange rates of bath to US dollar are per US$1 to bath was 31.364. These are the data in 1997/98 when Thailand had crisis. (According to, http://www.world66.com/asia/southeastasia/thailand/economy)
More important point, Thailand had some responsible to solve that problem. For example, IMF drops a lot of cash into Thai economy to improve capable of conversion into cash and activation up the cash flow between key entities. It means that Thai loan money from IMF. International Monetary fund (IMF) is an organization within the United Nations which encourages trade and economic development. It lends economic problems and sometimes tells governments to change their economic policies. (p.238, book: Oxford Learner’s Pocket, dictionary of Business English). Moreover, Thai government invited IMF to deal with this liquidity crisis such as re-establishing financial stability. So when economic turn around export was raise. In addition, IMF worked on loans conditional on a set of reforms such as in 1997 crash is “laying the foundation for a better Thailand by having forced greater transparency reform of financial institutions and reduction of corruption”. (According to, http://www.thailandguru.com/1997-asian-financial-crisis.html)
Secondly, let’s me describe about the Philippine economy in crisis 1997/98. The Philippine’s economy mix of agriculture and light industry growth led by expansion of exports and investment in 1997. In 1998, government of Philippine growth to slow, it growth about 3% because the financial crisis in South East Asia. Then government had some strategies to solve the crisis such as improving in restructure to the tax system to support with government revenues and moving toward private and remove of the economy. Now let’s me review the economic in Philippine in 1996/1997. First of all, the GDP of purchasing power parity was $244 billion and the GDP of the real growth rate was 5.1% in 1997. Anyway, the GDP of process by agriculture was 22%, industry 32% and services 46% in 1996. (According to, http://www.world66.com/asia/southeastasia/philippines/ecomony)
Furthermore, Philippine is likely to recover in 1999, by the monetary and fiscal authorities such as the greater attention paid to improving the banking and financial sector and the demand through exports and private that helped in private investment. (http://www.adb.org/documents/News/1999/nr1999035.asp)
Thirdly, I would like to take a bout the Malaysia’s economic. Before the crisis Malaysia was a popular investment destination. It is not affected economy in Malaysia in mid 1997 because Malaysia authorities are well aware of the challenges of management such as inflow substantial capital flows. But, it is impacted in late 1997. Moreover, the grew of GDP at a commendable rate of 7.3% in 1997, but the economic contraction was at -7.4% in 1998 such as regional economic slowdown, public sector expenditure reductions and so on.
Moreover, there was a reduction in the foreign direct investment (FDI) inflow into Malaysia from US$9 billion in 1996 to US$6.8 billion in 1997 and US$2.7 billion in 1998 after the Asian crisis. Anyway, the total of Malaysia debt increased from 43.9% of GDP in 1997 to 50.7% in 2001 from the debt of public and private sectors. However, foreign debt reduced from 25.2% in 1997 to 13.7% in 2001 in short term .In addition, the inflation in 1998 rise to 5.35 double from 1997 while unemployment rise to 3.2% from 2.5%.
On the other hand, government had some policy responses for crisis resolution. For example, macroeconomic policies change from frightening to easing supported the quick recovery of the crisis hit economic. Moreover, even Malaysia is independent macroeconomic policies could be adopted from the beginning of the crisis. But, Malaysia start adopted approach without IMF involvement because they through that IMF are unnecessary. Because of the Asian crisis countries were suffering from a liquidity problem.
Now let’s me turn to describe about economics of Indonesia. Indonesia is the largest size of its population. Indonesia seemed far from crisis because had low inflation and good banking sector. However, because of the largest member of population borrowing in US dollars made it turn to crisis. Then Indonesia’s economic crisis had problem with finance and banking system because of the rapid fall in exchange rates in South East Asia such as Thailand and Malay. When Thailand and Malaysia had problem with currencies, Indonesia was initially not affected because it did not suffer of a large current account deficit and high dollar-denominate foreign debt. However, in August 1997 financial sector of Indonesian revealed of weakness by selling of rupiah for dollars. Furthermore, Indonesia was low inflation such as 2.6 per cent during the first half of 1997. Then prices have raised most severe increase such as food and other essentials. For example, rice has increased from 1800 rupiah per kilo to 3500 and cooking oil from 2000 rupiah per liter to 5500 during the last year. Additional, the collapse of Indonesia’s currency had impact on employment, especially in urban areas. For instance according to World Bank suggest that the number of widespread poverty below the poverty line will increase from 23 million to 40 million.
The Government also response reform and the IMF, the Indonesian Government’s initial response to the pressure on the rupiah was generally seen by floating the currency and increasing interest rates. The Indonesian Government approached the International Monetary Fund for financial support on 8 October 1997. And the IMF announces a US$23 billion rescue package on 31 October to stabiles Indonesia’s currency and restore in its financial markets such as cutting government expenditure, reforming trade and industry policy and improving transparency in relations in relations between business and government. Secondly, in January 1998 IMF set out in more detail a program to prevent an economic contraction. For example, it support to the aircraft industry and the national car project such as trade monopoly on the import of rice and deregulation of domestic trade in all agricultural products. Then government wanted to protect the monopoly of basic commodities trade. The IMF has using loans to force Indonesia to adopt major policy reforms. However, even the fund made currency of Indonesia more confidence, but if no international investors. It also does not reassure in the problem of economic. Current Indonesian government economic projections for 1998 are for zero economic growth and inflation of 20 per cent. (According to, http://www.aph.gov.au/library/pubs/cib/1997-98cib13.htm).
Furthermore, there are there reasons that ASEAN seriously consider reviewing some of its policies. Firstly, ASEAN is in deep crisis and is in a state of malaise. Secondly, ASEAN is a club whose members range from authoritarian one party states to military governments. Thirdly, there is a change in attitudes accentuated by a generational gap. (Book: Principles Under Pressure: Cambodia and ASEAN’s Non-Interference policy, page 40/41).
While this, Asian Economic Crisis are impacts on Cambodia. The below is the impacts on Cambodia and its ASEAN integration. The key domestic factors that led to the crisis appear to be the following:
â€¢ Large external deficits,
â€¢ Property and stock market bubbles,
â€¢ The maintenance of pegged exchange rate regime for too long, which encouraged external borrowing and led to excessive exposure to foreign exchange risks in both the financial and corporate sectors and
â€¢ Lax prudential rules and financial supervision, which led to the deterioration in the quality of bank’s loan portfolios. (Book: Principles Under Pressure: Cambodia and ASEAN’s Non-Interference policy, page: 82).
There is some policy responses to the crisis, as the value of national currencies plummeted and in some countries reserves were low when the crisis unfolded. So the policy response was to confidence in the currency. It means that countries had to make it more attractive to hold domestic currency by raising interest rates that also aimed at stemming the outflow of capital. (Book: Principles Under Pressure: Cambodia and ASEAN’s Non-Interference policy, page: 83). In addition, in 1997 the Asian crisis fighting have has a cumulative effect on economic growth in Cambodia. For example, GDP growth dropped from 7% in 1996 to 2% in 1997. Anyway, in 1997, agriculture grew 0.8% compared to 2.4% in 1996. The Asian crisis and the July fighting led to the downturn of the tourism industry. For instance arrivals decreased by 45% from 156,578 in the second half of 1996 to 85,753 people during the same period of 1997.
(Book: Principles under Pressure: Cambodia and ASEAN’s Non-Interference policy, page: 85).
Moreover, it also impact on foreign direct investment. For instance Asian investors have either stalled or decided not to expand their projects in Cambodia. It means that they prefer to buy deflated assets in neighboring countries rather than put their money in Cambodia such as foreign direct investment (FDI) dropped by 16% from US$ 240 million in 1996 to US$ 200 million in 1997. (Book: Principles under Pressure: Cambodia and ASEAN’s Non-Interference policy, page: 87).
Furthermore, it impact on the sector banks in Cambodia consist of locally incorporated banks and branches of overseas banks. The regional economic crisis has had adverse impacts on the country’s banking sector. The banking crisis is not conspicuous, since not many Cambodians keep their savings in the banks. This was caused by low income, low saving rates and the general distrust of banks.
It impacted on the exchange rate, too. Cambodia has adopted a floating exchange rate system. The National Bank of Cambodia intervenes periodically stabilize the exchange rate. Fro example, the exchange rate depreciated by 40% from 2,700 riel per US$1 in June 1997 to 3,900 riel per US$1 in October 1998.
In the Social implications of the crisis, the crisis has produced large and rapid increases in inequity. The country has seen increasing poverty, unemployment and falling real wages. Given the potential impact of a weak economy on Cambodia’s ASEAN integration, ASEAN’s engagement with Cambodia should include a robust programme of assistance and broad flexibility regarding timetables and conditions for implementing ASEAN economic initiatives.
(According to, book: Principles under Pressure: Cambodia and ASEAN’s Non-Interference Policy, by: Hang Chuon Naron, page: 88, 89, and 90). (3)
After the cause of Asian crisis, we had some experience to control the further crisis. To Preventing Future Crises IMF and others have some recommend.
The Chancellor’s specific proposals for an updating of the system which established the IMF and the World Bank at Bretton Woods in 1948 were:
â€¢ Improving global regulation, which would involve the IMF, the World Bank and other regulators forming a new, permanent standing committee for global financial regulation,
â€¢ Creating a process of active and transparent surveillance of borrowing nations,
â€¢ Creating a Code of Best Practice on Social policy issues, so that financial crises, if they do occur, do not result in disproportionate increases in poverty within developing countries. (1)
The IMF has made a similar case, that to strengthen the “architecture of the international monetary system”, a framework is needed centered on five aspects of the system:
â€¢ Reinforcing international and domestic financial systems,
â€¢ strengthening IMF surveillance,
â€¢ Promoting more widely available and transparent data on member countries’ economic situation and policies,
â€¢ Underscoring the central role of the IMF in crisis management,
â€¢ Increasing the involvement of the private sector in forestalling or resolving financial crises.
At the IMF and World Bank meeting in Hong Kong in autumn 1997, discussion about making fundamental change to financial systems was already under way. (2)
To sum up, the Asian finical crisis made the economics of South East Asia meld down. While this spread worldwide Cambodia’s economy is donor-driven.
Why monopolies are often regarded as being inefficient
A market structure tries to analyze the economic environment in which a particular company operates. A market consists of all producers and consumers who are able to supply or demand a good or service at any given price. Therefore by observing the market structure, we can extract information and judge whether there is competition, consumers are not overcharged and understand if resources are used effectively. One market structure which i will analyse more detailed below is monopoly which exists when there is one producer or seller of a product. Although producers can control either the price or the output, not both!
A firm can be described as a monopoly if it is the only supplier of a good for which there is no close substitute. Under the United Kingdom and the European law monopoly occurs when a firm controls more than 40% of the market which it operates. Therefore, monopoly can be described as the opposite extreme to perfect competition. Perfect competition is a supreme market situation where many sellers and buyers exist who are well informed about goods and services and they can all be active as price takers. Suppliers aim is to maximise their profit so the way producers use their resources is the best way and the most efficient. On the other hand consumers are not loyal to producers since their aim is to maximise their benefits. Although the most important characteristic of a perfect competition is the fact that there are no barriers of entry or exit which means that supernormal profits can be achieved in the short run whether in the long run only normal profits can be achieved.
Diagram of perfect competition handbook
The only market which is close to monopoly is oligopoly. Although there are still some important differences like the fact that in an oligopoly even though there are barriers of entry, limited entry to the market can be done. Also, producers try to avoid price-based competition by forming either secret agreements, cartels or use non-price based competition methods which eventually will kick out future producers out of business. In an oligopoly market there are just very few suppliers. An example of such an industry is the soft drink industry. Goods and services in an oligopoly have very close substitutes and supernormal profits can be earned in the short run and long run.
Diagram of oligopoly-kinked diagram uni handbook
Although, in order for monopolies to exist some important reasons should exist. That is why monopoly can be divided into four categories. The first type of monopoly which exists is the Natural monopoly which exists in cases of expected full control of natural resources. An example of such a firm is DeBeers which is the producer of diamonds in Africa. Since they have almost the control of all natural resources it is impossible for a new firm to enter the specific market and be able to compete them. The second type of monopoly is technological monopoly which exists when a firm has control in terms of technology. This happens when just one firm has the know-how, the technology and the money to invest on a specific good or service. Such an example is software by Microsoft. The third kind of monopoly is the Statutory monopoly which exists in cases of companies which are protected by the government. So, the government impose a law which does not allow any rivals to enter the market. An example of such a firm is the Cyprus Electricity Authority. In this way government can control prices and resources. The last but not least type of monopoly is Cartels. This formal or informal agreement exists when two or more companies form groups and work together to face competition. So, an example of such an agreement is for the specific firms to charge the same price for their good.
The features that can best describe a monopoly are various but the most important one is the fact that there is no competition due to existence of only one large firm who has the power to control the whole market. Since there are so powerful they can act as price makers and provide consumers with imperfect knowledge. In this way a firm is able to charge different prices to different group of consumers. In addition the fact that the goods and services provided by a monopolistic firm are non homogeneous it automatically means that is extremely difficult for other firms to copy the exact good. So, since there is just one such a kind of good in the market is easy for the firm to enjoy supernormal profits. Although the characteristic that can best describes a monopoly is the fact that there are extreme high barriers of entry which makes the entry of a new firm in the market almost impossible!
As I mentioned above the high barriers of entry makes the market regarded to be as a non-contestable one. Such barriers of entry can be the transportation costs which will certainly need a lot of money to carry out this expense since for a large firm to transport itâ€™s goods, will be needed a lot of containers and tankers. Also, economies of scale can be a really high barrier of entry since a new firm will surely not be able to benefit in the same amount of economies of scale as a large well known already existing firm. One more barrier of entry can be branding. If a very famous brand name exists in the market it is often very difficult for a new and unknown firm to compete against them. Another barrier which can make a new firm to reconsider of entering the market is the capital costs since capital needed for setting up a new business who aim to compete a monopolistic firm is very high. In addition to all these barriers of exit can be considered as another reason to think about it since sunk costs which will cost a lot of money are not recoverable by a firm if it fails. Examples of sunk costs can be advertising and wages.
Diagram of loss case monopoly handbook
Some very serious disadvantages arise in the monopoly market which is mainly due to low or no competition. Since barriers of entry and exit are extremely high, this prevents new companies enter the market or may force smaller firms out of business. In addition, consumers face a poor level and low quality of services since there is no competition. Since demand remains constant there is no need for the firm to improve the quality of their goods and services offer to the consumers. The large firm enjoys producer sovereignty since they have the absolute control over the use of scarce resources. Also, the firm can use the imperfect knowledge to charge different prices to different groups of consumers as well as lower output by reducing supply and higher prices at any given time. Since they do not have the pressure of other competitive firms, basically they can act as they want regarding peopleâ€™s need.
On the other hand, some advantages mostly enjoyed by the firm who controls the market power like economies of scale. The fact that they are so powerful give them the ability to compete in global markets thus acting as a multinational. The larger the firm means that they can lower their average costs by different methods carried out and achieve economies of scale. For example a multinational can lower its average costs by decreasing transportation costs. Since there are more products needed to be transferred at different places cost is divided equally to all of them therefore average cost is lower. Furthermore, a firm acting as a monopoly can enjoy supernormal profits in the short run as well as in the long run. For that reason they have the incentive to invest more money for research and development in order to earn even higher profits and keep these by using barriers to entry.
Diagram of profit case monopoly handbook
On evaluation, a monopoly can often various advantages but they can be only enjoyed by the large firm who owes the biggest market power. On the other hand, it is often regarded as being inefficient since there is no competition or any incentives for a new firm to enter the market. In this way the large firm can provide consumers with imperfect knowledge and act as it likes since there is nothing to stop her for doing that. Due to no competition there is no good use of scarce resources and supply can be changed for the producerâ€™s preference. In contrast with the perfect competition market where resources are allocated efficiently since a lot of firms compete against each other with the objective to increase their profits. Therefore, in my opinion a monopoly is not a market which works for the consumers benefit since consumers have no power or knowledge to change something for their favour.