Asian Financial Crisis and Globalisation Essay Example | Topics and Well Written Essays - 500 words

Asian Financial Crisis and Globalisation - Essay Example Therefore this paper investigates the possible causes, contagions and effects of the Asian financial crisis with regard to globalization. The list of potential causes of the crisis is long but a short list would include: the futile attempts of the governments to keep their currencies at artificially high levels, massive overinvestment by various corporations funded by excessive borrowing, government ability to direct banking systems and decisions of lending, crony capitalism, lack of transparency, inadequate financial regulations and supervision, rigidity of labor markets and pronounced mismatch of assets and liabilities in both the corporate and banking sectors (Agà ©nor 1999; Walker 1998). However, the most important causes to the current Asian crises include the low corporate profits and unwillingness of the policy makers to relinquish control. The governments’ directive to the banking systems and the corporate governance structures to increase their sizes and market shares resulted in systematic overinvestment and sharp declines in corporate profitability. Besides decreasing the overall value of most countries in Asia, the shrinking profits weakened the banking sector that most firms rely on for funding (Walker 1998). The government interventions in the currency markets have led to high reductions in the value of currency of most countries in Asia (Rotblat 2001). For instance, when the currency of Thailand (the baht) was overvalued, the government failed to allow an orderly depreciation but fought the market forces because it thought it had enough foreign exchange reserves and wanted to avoid the high political costs associated with the devaluation of baht. With this move, the baht was finally allowed to float and its value fell. Contagion refers to the spread of a financial crisis from one institution to