Hong Kong Financial Crisis Analysis

The financial crisis was first felt in Thailand on July 2, 1997, in which later spread to Malaysia, Indonesia, Philippine and Singapore; not forgetting Hong Kong, Taiwan, Korea, Japan and China. None of the countries in East Asia were spared from the impact of the financial crisis. The collapse of the Thai baht in July 1997 was followed by an unprecedented financial crisis in East Asia, from which these economies are still struggling to recover. Productivity in Thailand decreased, unemployment became high, and businesses went bankrupt causing the worst recession in Thai postwar history. The move triggered a financial and economic collapse that quickly spread to other economies in the region, causing GDP growth rates to contract precipitously,

First a shortage of foreign exchange that has caused the value of currencies and equities in Thailand, Indonesia, South Korea and other Asian countries to fall dramatically. Second is inadequately developed financial sectors and mechanisms for allocating capital in the troubled Asian economies. Third is an effect of the crisis on both the United States and the world. Forth is the role, operations, and replenishment of funds of the International Monetary Fund.

Among the factors that caused the financial crisis in Malaysia were speculative attacks, deficiencies in risk management, form of corporate governance and equity markets, and the legal infrastructure. The Malaysian economic was vulnerable due to the unsustainable pace of economic growth and over-valued exchange rates. Having grown by an annual average of 9.6% in the five years preceding the crisis, the economy contracted by 7.4% in 1998. The shrinkage reflected a sharp retraction in investment spending, weak external

The next plan involved two phases of the reform process, which was stabilization and reformation. In terms of the reformation process, several agencies were established to face the financial crisis such as Danaharta which had objective to purchase the non-performing loans (NPLs) and Danamodal to recapitalize financial institutions in the stabilization phase. The reformation phase consisted of corporate sector restructuring (Corporate Debt Restructuring Committee), merger of financial institutions, and the development of the bond market.

The important to develop an environment where capital can be mobilized to finance long-term investment and to provide a better match between risks and returns. Thus, the development of a bond market was viewed as a priority because it served as an alternative source of raising capital. In view of the importance of this issue, the Malaysian government had established a committee to expedite the development of the bond