Are Asian Economies headed for a Repeat of the 1997 Asian Financial Crisis?

Slowdown in China

There has been a noticeable slowdown in the Chinese economy over the last few months. Coupled with a draining of the excess liquidity that was introduced into the economy through massive monetary stimulus in the wake of the global economic crisis, the Chinese economy suddenly looks vulnerable.

Added to this is the fact that the Chinese economic model is driven by exports and low domestic consumption which means that as the target countries of the West to which China exports slow down, there is going to be a corresponding slowdown in the Chinese economy as well.

Further, the fact that the Chinese economy has been pump primed heavily meaning that the Central bank engaged in massive monetary stimulus has only exacerbated the problem wherein it is now engaged in an exercise to control inflation.

Moreover, the statistics put out by the Chinese government about its economy are suspect leading to doubts over whether there is really growth happening now or it is just creative accounting, which is a euphemism for window dressing of statistics.

Japanese Style Monetary Easing

The Great Japanese experiment in Quantitative Easing or pumping extraordinary amounts of money into its economy looks like it is a failure, as the growth that was expected has not materialized.

In other words, despite massive monetary stimulus, the GDP (Gross Domestic Product) hardly registered an increase and this was the reason why many experts are predicting that the present policies of the Central Bank of Japan would be a failure.

Apart from this, there has been a noticeable slowdown in other Asian economies with only a few countries being the exception. These Vietnam, Cambodia, and Malaysia are now being considered as the additions to the list of emerging markets.

The point here is that despite many Asian countries indulging in monetary stimulus, the effects are hardly visible and though many experts blame the global slowdown for this, the fact remains that the Asian countries are still in a situation where the economies are not mature enough to handle high deficits and inflation.

Of course, Japan cannot be considered as part of this since it is considered a developed country. However, the fact remains that Japan has been unable to manage its economy properly leading to many observers questioning whether it has its priorities right.

Repeat of the 1997 Asian Financial Crisis?

The preceding discussion indicates that a repeat of the 1997 Asian Financial crisis cannot be ruled out, as the conditions now are similar to the conditions at that time.

In other words, with high deficits, falling currencies, and rampant inflation, Asian economies are also beset with high levels of corruption and crony capitalism.

All these factors make for a lethal cocktail of dangerous dimensions that can easily translate into a crisis of the highest order. This is the reason why many experts believe that despite the claims of the policymakers in the Asian countries, the reality might be otherwise.

The irony of the situation is that the Asian economies do not seem to have learnt the lessons from the previous crises and are going down the same path that they have taken earlier. This is the tragic situation as it exists and therefore, one must be wary and weary of the claims made by the policymakers in these countries.

Added to this is the fact that all these countries have gotten used to cheap money flowing from the US courtesy the Federal Reserve with its loose monetary policy. Therefore, any tapering off the Quantitative Easing in the US will lead to serious repercussions in Asia.

Concluding Remarks

Finally, whether there is going to be a repeat of the 1997 Asian financial crisis or otherwise, the fact remains that the people of this region are paying the price for the perverse macroeconomic policies pursued by the policymakers. Therefore, it is high time the policymakers did something that is in the interest of the ordinary citizens of these countries.