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Asian Miracle Of 1960s-1997 Case Study

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The Asian Miracle of 1960s – 1997 in Thailand, South Korea, Hong Kong, Singapore, Taiwan, and Indonesia was hailed as a miracle with very high growth rates of 8 to 12% for about 27 years. The miracle was primarily due to the region maintaining high Interest rates to attract foreign investments, leading to rapid industrialization, the regions industrial policies supporting exports, and such industries getting below market interest rates. Then the region suddenly collapsed, except in Singapore. Why?
1. The miracle was possible as US was in recession, and was able to provide capital at low interest rates to the Asian Tigers - 50% of capital inflows in Asia. Pegged Currencies encouraged external borrowing and high exports – driving rapid economic growth. Export to GDP ratio grew from 35% to 55%. There was dramatic run-up in Asset prices and excessive exposure to forex movements. Once the USA stabilized, and increased its interest rates, there was flight of capital from the region, leading to the collapse in SE Asian countries.
2. The famous economist Paul Krugman examined the phenomenon, and was of …show more content…

During 1985-96, Thailand was the most successful country in the region, growing at highest rate of 9%. Real Estate sector was booming, and high interest rate attracted investments from US and west. Export growth was very high. Reason for failure was that Thailand Baht was pegged at 25 to US $. When US increased interest rate to curb inflation this made US investors to take their money from Thailand and invest in US. This triggered the outflow of $, resulted in devaluation of baht and it reached its lowest point of 56 units per $. This made foreign loan costlier by two to three times, and resulted in collapse of various companies and biggest financial corporation “Finance One”. There was fear among foreign investors about their money so they started pulling money from these markets. This deepened crisis and many people lost their jobs, leading to political

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