ABSTRACT
While foreign observers may differ about how to resolve East Asia’s crisis, there is a consensus on what caused it. Ross Garnaut argues that the meltdown had i ts origins in the mismanagement of short-term macroeconomic policy, and its implications in the context of changes in the economic environment (Garnaut May 1998). Financial institutions and the corporate sector generally gambled that the high growth which began in the mid-1980s would continue. The increased mobility of international capital, together with the growing speculative content of a long boom, helped to expose flaws in macroeconomic management, notably in exchange-rate regimes. From the mid-1990s, South-east Asian currencies-fixed against a basket with a high US dollar weighting-were particularly vulnerable to three influences. The first was the strengthening of the dollar against the yen (from ¥80 to the dollar in 1995 to ¥120 by late 1997). Second, inflation in the Indonesian, Malaysian and Thai economies was higher than the low levels in the major industrial economies, including Japan, a principal trading partner. Third, there was a slump in the market for electronics
products, which particularly affected Malaysia and Thailand (Garnaut May 1998:3). These regional and global forces have squeezed South-east Asian economies in two ways. On the one hand, China has not only attracted global capital, but has also poured cheap consumer goods into export markets. On the other, aided by the yen’s depreciation, Japan has embarked on an aggressive export drive, which has affected South-east Asia’s hightechnology industries (Njo 1997).
