¶ … agree with the belief that the Asian financial crisis was rooted in governmental interference. I also agree with the fact that the export-led model is no longer sustainable because international markets are saturated. The mandating and structuring of regional markets by the nations in East Asia, particularly Japan, China, Malaysia, and Singapore, have proven to be devastating to their relative economies. In order to understand the Asian financial crisis, it is important to explore its origins. Throughout the 1980s, the Asian countries, particularly Japan, experienced major financial growth. Industries, especially those involving high technology, were thriving in East Asia (Sato, Ryuzo, and Takashi Negishi). In the mid 1990s, signs began to emerge that the economy was much less stable than people had originally thought (Sato, Ryuzo, and Takashi Negishi).

Firstly, capital account surpluses were greatly exceeding the deficits of many of the East Asian countries, including Japan, Malaysia, and Singapore. The increase in domestic money supply caused domestic "absorbtion," and a dramatic slowing of international investment (Liping). The economic problems were causes for concern, but not necessarily strong enough reasons to plunge the East Asian economy into the state it is today. The real catalyst in the Asian financial crisis was how the nations' governments handled the economic situation.

A prime example is the actions taken by the Japanese government. The Japanese government tried extensively to fend off the economic slowdown of the mid 1990s. In an effort to save domestic corporations, the government advanced many "rights" to companies that were in debt, or fighting bankruptcy (Liping). In turn, the government was supporting failing companies, and in doing so, neglecting the natural economic dynamic that follows a slowdown.

The nation's GDP steadily decreased throughout the 1990s, yet the government was still allotting funds...

The government also used a substantial amount of its funds to stabilize the stock market.
The biggest beneficiaries of the government subsidies were Japanese banks (Patrick). The government implemented interest rate controls, preventing the competition between the banks (Patrick). In turn, their assets grew at the same rate, and this example of "stifled" competition was reflected in the government's handling of most of Japan's other industries, as well (Patrick). In his essay, "The Causes of Japan's Financial Crisis," Columbia professor Hugh Patrick notes that the system was essentially the strong supporting the weak. He goes on the write, "The system was based on close, symbiotic relationships between the powerful Ministry of Finance, and the big banks, securities companies, and insurance companies. These collusive arrangements were based on the leadership of the Ministry of Finance through administrative guidance, price setting, protection, and restriction of competitive impulses. Accordingly, it was a system of implicit guarantees against losses for banks and depositors" (Patrick).

The policy of financially boosting failing banks and corporations perpetuated the economic downturn in Asia, and eventually led to the long-term recession we have witnessed over the past ten years. Profitable companies were constantly having to carry the weight of the failing ones in Japan, whether through government mandated mergers, or through government manipulation of the markets.

Also, the lack of domestic competition served to stagnate the progress of many East Asian companies, which in turn, lowered their status in the international marketplace. The export markets for many of these countries slowed, and so did their foreign investment.

The governments of Malaysia and Singapore followed similar patterns to Japan's government regulation…