The rise and fall of Asia since World War Two : an economic perspective

Abstract

The Asian countries with Japan as the main driving force experienced continued high growth rates in the post war era and it seemed that this would continue indefinitely. In 1990 Japan's economic growth slowed down and a period of stagnation followed. (Delhaise, 1998:3) The problems in the rest of Asia also became more evident, and in 1997 it created panic in the financial world, converted into a global contagion, spreading through the wor1d economies at a rapid rate. The 1997 Asian financial crisis caused a global economic conflagration spreading from Asia through to the United States, Latin America, Eastern Europe and even Russia. This shocked the world. The reason for this was that it struck the countries with a sustained record of economic growth over a long period. (Fischer, 1998: 1) Throughout the 1980's and 1990's Asia's economic growth astonished the world .The region's stock markets achieved record levels and unprecedented economic growth rates were recorded in most of the countries. The world expected this to continue indefinitely but eventually the crash came in 1997,probably with the devaluation of Thailand's currency (the baht) in July 1997. (Mallet, 1999:48) Japan's role was of paramount importance in the Asian crisis as they invested heavily in the economies of the other Asian countries, and the crisis probably started when their economy started to slow down in 1990. It had been in a sluggish phase for seven years when the Asian crisis started in 1997. (Szamosszegi, 1998: 1) The crisis created rippling effects in all the major economies and in the economies of smaller countries, like South Africa where our currency devalued sharply against all the major currencies, especially the US Dollar.Our stock exchange rallied down sharply and investors lost billions of rands in a short space of time.

In October 1997,the largest stock market in the world, Wall Street, in the United States of America, halted trading early on October 28, 1997 as the Dow Jones Index dropped by more than 7% in one day. (Norris, 1997: 1) Asia's financial systems have had to rely on 19th century technology according to Miller of the University of Chicago; capital markets were poorly developed and the banks expanded credit excessively. (Delhaise, 1998: 1) The governments in these regions should have done more to manage the fastest industrial revolution the world had ever seen, but they fell into the same traps and pitfalls as the western world. They were ill prepared for the foreign policy challenges that faced them after the financial crisis that started in 1997. To fully understand the factors that caused the crisis and make recommendations as to the possible prevention of a future crisis it will be necessary to analyse the causes and compare them with the principles of sound business and macro economic policies. The end result would be to use the results of the research to make recommendations as to the treatment of similar financial shocks in the future.