Asian Financial Crisis of 1997 It is indeed true to assert that The Asian financial Crisis of 1997 imparted a truly tremendous influence on the economic and political development of East Asian nations and sparked the necessary impetus in acknowledging the economic interdependence. This crisis also put clear emphasis on the necessity of cooperation and integration within this region of the world.

Causes of the Crisis

When it comes to the causes of the Asian financial crisis, there are two schools of thought on what caused it. The first school of thought orbits around the idea that the collapse of the Thai Baht in July of 1997 was largely responsible for this crisis. "One view is that there was nothing inherently wrong with East Asian economies, which have historically performed very well. These economies experienced a surge in capital inflows to finance productive investments that made them vulnerable to a financial panic. That panic -- and inadequate policy responses -- triggered a region-wide financial crisis and the economic disruption that followed (Sachs and Radelet 1998)" (Moreno, 1998). Thus, one can understand this theory in the sense that since the Asian financial system had such a long history of intense stability and prosperity, it was not used to adversity, and thus any negative activity was a crushing blow to the general morale and had the ability to instill panic.

On the other hand, an opposing view saw the Asian financial system as a whole as being responsible for the collapse. This is a theory which views the Asian financial systems as being inherently flawed and weak. "These weaknesses were caused largely by the lack of incentives for effective risk management created by implicit or explicit government guarantees against failure…The weaknesses of the financial sector were masked by rapid growth and accentuated by large capital inflows, which were partly encouraged by pegged exchange rates" (Moreno, 1998). This paper will attempt to demonstrate how these causes were actually both responsible for the crisis at large. This paper will also explore the major outcomes of the crisis and how the crisis ultimately led to greater integration.

Thai Baht Collapse

The previous environment of finance and trade in East Asia before the collapse was generally one of high savings and investment rates with moderate inflation; quick growth went hand in hand with large jumps in asset values, stock and land prices and in short-term borrowing from overseas (Moreno, 1998). However, a few years before the crisis a series of negative external factors such as the devaluation of Chinese and Japanese currencies, along with a marked decline in semi-conductor prices had an adverse impact on export revenues, which in turn retarded the growth of economic activity and asset prices steadily declined in a range of nations in Asia. Thailand could not withstand all of these factors and thus we saw the collapse of the Thai baht in 1997; this in turn caused investor to re-evaluate the robustness of currency pegs and other elements in the region (Moreno, 1998). "The result was a wave of currency depreciations and stock market declines, first affecting Southeast Asia, and then spreading to the rest of the region. In the year after collapse of the baht peg, the value of the most affected East Asian currencies fell 35-83% against the U.S. dollar (measured in dollars per unit of the Asian currency), and the most serious stock declines were as great as 40-60%" (Moreno, 1998). These types of disturbances are simply hard to bounce back from and can lead to comprehensive bankruptcies and a stalling in credit flows in some of the most extremely impacted economies. This in turn can stunt or slow economic activity as it did in the Asian financial crisis.

Once the Baht depreciated, foreign funds hemorrhaged into the country in order to indulge in the high interest rate differential (ADBI, 2013). The situation got worse as the region engaged in short-term borrowing from overseas, so that long-term projects could be bankrolled as a result of currency and maturity mismatches (ADBI, 2013)....

"As a result, a balance-sheet crisis occurred due to sudden capital outflows. The foreign short-term liabilities had exceeded international reserves in 1996. As soon as the baht was floated, foreign debt in local currency overshot, the sovereign rate of Thailand decreased, and then investors' sentiments were adversely affected" (ADBI, 2013). As other economists have pointed out, even though Thailand had experienced impressive growth over time, this growth only functioned to mask other weaknesses, weaknesses which were largely responsible for the crash. Some of these flaws were tendencies to sustain a fixed exchange rate even when it was no longer ideal; permitting a range of short-term capital flows to build up with an increased degree of currency speculation; the absence of an effective risk management system at the country-wide level as well as at the regional level (ADBI, 2013). Given these reasons, one could argue that many of the causes and underlying factors which underscored the Asian financial crisis enveloped the basic features of a classic capital account catastrophe (ADBI, 2013).
Repercussions

After the Thai Baht shot down, so did the Malaysian ringgit, Philippine peso, and Indonesian rupiah (Nanto, 1998). Just as these currencies were hitting some sort of stability even at their lower values, other currencies of other nations began to be affected. For instance, the Taiwan dollar, South Korean won, Brazilian real, Singaporean dollar, and Hong Kong dollar all started to become affected, and dropped in turn (Nanto, 1998). "In countering the downward pressures on currencies, governments have sold dollars from their holdings of foreign exchange reserves, bought their own currencies, and have raised interest rates to foil speculators and to attract foreign capital. The higher interest rates, in turn, have slowed economic growth and have made interest-bearing securities more attractive than equities" (Nanto, 1998). In turn, this caused stock prices to shoot down in Asia, eventually being felt by other companies at other parts of the world, making this financial crisis felt acutely by all parts of the globe.

However, the repercussions weren't all negative. For example, the unemployment and poverty that the crisis caused in the area demonstrated that every society needs some sort of social protection for its people, regardless of how well the economy is doing; this was a basic lesson of the catastrophe in general. "Even robust and well-managed economies -- think of Malaysia in early 1997 when all economic indicators were largely positive -- enter into difficulties due to factors beyond their control. And, once in the middle of a crisis, economic and eventually social conditions deteriorate rapidly before they improve, leaving behind lasting long-term effects" (Ramesh, 2009). Many of these nations prior to the crisis simply didn't have vehicles in place for stability and for help for needy members in case of emergencies. Such a catastrophe demonstrated that social protection and social programs could truly protect some of the most vulnerable members which would be the minority of people when times were stable and the majority of people when times were rocky.

Another arena of development that emerged from the financial crisis was that Asian markets and the financial sectors of the Asian countries involved in the catastrophe were forced to mature the way in which they engaged in financial processes. One of the biggest manifestations of this was through financial integration. Financial integration refers to "...a multidimensional process closely associated with development of financial markets. During the period following the Asian financial crisis of 1997, many Asian economies modernized their financial sectors and strengthened linkages with the financial sectors of other economies in the region. This has led to considerable maturation of many of the region's domestic capital markets, its local-currency bond markets in particular" (Park, 2013). These moves helped to stabilize the region as a whole and assisted in protecting the financial markets from further chaos. This process…