Asian financial crisis explained
Of course, ready investors and easy lending often lead to reduced investment quality, and excess capacity soon began to show in these economies.
In exchange for the funding, the IMF required the countries to adhere to strict conditions, including higher taxes, reduced public spending, privatization of state-owned businesses and higher interest rates designed to cool the overheated economies.
Watch Government Spending:
Growth in the region's export economies led to high levels of foreign direct investmentwhich in turn led to soaring real estate values, bolder corporate spending, and even large public infrastructure projects - all funded largely by heavy borrowing from banks.
More and more was required as the size of the bubble grew.
Concerns about the IMF:
Lessons The Asian financial crisis has many important lessons that are applicable to events happening today and events likely to occur in the future.
The Bottom Line The Asian financial crisis began with a series of asset bubbles that were financed with foreign direct investment.
This often led to heavy buying of U.
In the Asian meltdown, highest IMF officials rationalized their prescribed high interest rates as follows:
Development money went in a largely uncontrolled manner to certain people only - not necessarily the best suited or most efficient, but those closest to the centers of power.
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