Question

What are the similarities and differences between the Latin American Debt Crisis and the Asian Financial Crisis? And how do these crisis illustrate the tension inherent between development and developing countries in managing economic crisis?

Answer 1

Answer :-

Similarities:-1) Both the crises included brorrowing huge amounts from international creditors .(bad loans we must say)

2) Many nations involved in both the crises spreading from one country to its neighbouring countries.

3) In both the crises the currency value of the countries had come down drastically.(on an average 50% reduction in the original currency value. In Asean financial crisis almost every country try had devalued its currency.

4) High inflation , unemployment, low incomes , recession were common in both

5) Both crises were triggered by the bad/futile investments by the respective countries that didn't fetch any income to repay their loans.

Differences:-

1) The Latin American debt crisis was triggered by the surge in oil prices (Latin American countries couldn't afford the increased prices i.e. around the 300% of original price) ,whereas the Asian financial crisis was triggered by the devaluation of currencies as they couldn't manage their foreign exchange .

2) Asean financial crisis had become global crisis as spread to Russia and Brazil like you countries. Latin American debt crisis was limited to Latin America only at that time .

3) East Asian countries recovered from the crisis quickly with the help of IMF and world Bank and other international institutions by improving their economic growth and income , where as the Latin American debt crisis is still due

4) Asean financial crisis became political as the crisis resulted in changing the governments owing to economic failures (Indonesian president had to come down etc), where as the Latin American debt crisis remained economic problem .

Management of economic crisis :- developed nations usually have better foreign exchange reserves in order to counter such crises and at the same time their currency value is managed in tune with the global market forces so that their economy will be ready to face any economic slowdown, whereas developing nations take loans at one particular scenario of global economy not thinking about the future economic consequences ,these developing nations don't face any crisis as long as the global economic growth is stable and there is not much inflation and if we have adequate resources but once the conditionsarr adverse they will have destructive effects on economy .

Countries like America and other European countries issue global currency and they need not to depend on any particular economy where as the least developed nations will have adverse effects once the interest rates are hiked in developed countries as their incomes do not balance their loans owing to large difference in the incomes.