Financial Crisis Recovery
Kulliyyah of Economic and Sciences International Islamic University Malaysia
Issues in Islamic economics (ECON 4510)
DR. MUHAMMAD YUSUF SALEEM
SECTION: 1
GROUP ASSIGNMENT
Financial Crisis Recovery
Bahiyah Mohsin Fadzli (0810620)
Fahmaninda Listiyani (0828520)
Meriati Ramli (0738342)
Muthia Rosadila (0825134)
1997-1998 Financial Crisis
The weaknesses in Asian financial systems were at the root of the crisis that caused largely by the lack of incentives for effective risk management created by implicit or explicit government guarantees against failure. The weaknesses of the financial sector also were masked by rapid growth and accentuated by large capital inflows, which were partly encouraged by pegged exchange rates. In the mid-1990s, a series of external shocks began to change the economic environment - the devaluation of the Chinese Renminbi and the Japanese Yen, rising of U.S. interest rates which led to a strong U.S. dollar, the sharp decline in semiconductor prices; adversely affected their growth. The crisis began in Thailand when the Thai baht collapse of in July 1997 with a series of speculative attacks on the baht extended after quite a few decades of outstanding economic performance in Asia. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation. This made the U.S. a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At the same time, Southeast Asia 's export growth slowed dramatically in the spring of 1996, deteriorating their current account position. Many economists believe that
Issues in Islamic economics (ECON 4510)
DR. MUHAMMAD YUSUF SALEEM
SECTION: 1
GROUP ASSIGNMENT
Financial Crisis Recovery
Bahiyah Mohsin Fadzli (0810620)
Fahmaninda Listiyani (0828520)
Meriati Ramli (0738342)
Muthia Rosadila (0825134)
1997-1998 Financial Crisis
The weaknesses in Asian financial systems were at the root of the crisis that caused largely by the lack of incentives for effective risk management created by implicit or explicit government guarantees against failure. The weaknesses of the financial sector also were masked by rapid growth and accentuated by large capital inflows, which were partly encouraged by pegged exchange rates. In the mid-1990s, a series of external shocks began to change the economic environment - the devaluation of the Chinese Renminbi and the Japanese Yen, rising of U.S. interest rates which led to a strong U.S. dollar, the sharp decline in semiconductor prices; adversely affected their growth. The crisis began in Thailand when the Thai baht collapse of in July 1997 with a series of speculative attacks on the baht extended after quite a few decades of outstanding economic performance in Asia. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation. This made the U.S. a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At the same time, Southeast Asia 's export growth slowed dramatically in the spring of 1996, deteriorating their current account position. Many economists believe that
References: Mohamed Ariff, Syarisa Yanti Abubakar,”The Malaysian Financial Crisis: Economic Impact and Recovery Prospects” (1999) The Developing Economies, XXXVII-4: 417–38 Reinhart, V Recovery from the Asian Crisis and the Role of the IMF, IMF Staff (2000) http:// www.investopedia.com/articles/economics/09/international- monetary-fund imf.asp#axzz2EQhoHzz9, retrieve on 4 November 2012 [ 1 ]. Federal Reserved Bank of San Francisco Economic Letter: What Caused East Asia’s Financial Crisis? 98-24; August 7, 1998 [ 2 ] [ 13 ]. Reinhart, V. (2011). A year of living dangerously : The Management of the Financial Crisis in 2008. Journal of Economic Perspective.25 (1). Pg 71-90. [ 20 ]. "Greenspan-We Need a Better Cushion Against Risk". Financial Times. March 26, 2009. Taken from http://www.ft.com/cms/s/0/9c158a92-1a3c-11de-9f91-0000779fd2ac.html. [ 33 ]. Tambunan, T. (2010). The 2008/2009 Global Economic Crisis and The Impact on Indonesia’s Economy. CENTER FOR INDUSTRY, SME & BUSINESS COMPETITION STUDIES TRISAKTI UNIVERSITY [ 48 ]. Hussein Alasrag “Global Financial crisis and Islamic finance” (2007)