Asian financial markets witnessed a major collapse at the end of October 1997, which was dubbed on Monday as the crisis began in Thailand and quickly spread to the rest of the region when stock prices were low. The outbreak of the financial crisis has caused a great deal of confusion over the reality, significance and dimensions of what has happened, as concerns about the end of the global economy have intensified following this crisis.
Indonesia, South Korea and Thailand, followed by Malaysia, the Philippines, Laos and Hong Kong, as well as China, Taiwan, Singapore, Brunei and Vietnam, all of which suffered from lower demand and market confidence across the region.
The main reason is the international speculators protected by IMF, where their money was as much a commodity as they wanted. When the Asian countries found that these speculations affect the value of their currencies began to raise interest rates in order to stop funding from national currencies to foreigners, and this led to the shift of investors from investment in financial markets to deposit in banks, which means the sale of securities to put the price in banks than Has led to a sharp drop in prices in financial markets.
Asian countries have been trying hard to implement the free capitalist economy policy, which is based on easing capital restrictions and laws, encouraging foreign investment and maintaining high internal interest rates in order to absorb the investment of portfolios and capital of banks, and devaluation of the local currency against the dollar in order to reassure foreign investors of the risks the currency. But this capitalist openness is compatible with the problems already present in each Asian country, such as corruption in Thailand, nepotism in Indonesia, and the weak financial sector in South Korea, which is the beginning of the end of this economic expansion.
The ratio of foreign debt to GDP rose from 100% to 167% in the economies of the Association of Southeast Asian Nations between 1993 and 1996, passing 180% during the worst stages of the crisis. South Korea's share rose from 13% to 21%, and later reached 40%, while the other northern industrial countries were much better.