What causes international currency crises like those that struck a Mexico in 1995 and Thailand and other Asian
Answer:
The are many factors but it all comes down to major imbalances that worsen due to a serious change in the economy which causes capital to rapidly flow out of the nation.
Thailand and many Southeast Asian countries had large current account deficits as a % of GDP in the mid-1990s. They also had relied on huge foreign direct investment, real estate investment, and foreign financial investment into stocks, bonds. Additionally the govt. and domestic corporations in these economies borrowed large amounts in USD in the form of bonds.
As long as economic growth was high, exports good, and real estate markets doing well, the imbalance wasn't a problem. But in Thailand in 1997 the real estate market went down and the domestic economy slowed. This caused the huge external imbalances to blow up with the Thai Baht falling off a cliff. Eventually this situation spread to neighbors and if they had a similar profile they suffered the same fate; an economic collapse followed by a recession.
Mexico's situation in 1994-95 is about the same as Thailand and many Southeast Asian nations.
Fear. Overspeculation. ANd a Really stupid America President.
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