UPSC Prelims 1999·GS1·economy·open economy

The economic crisis in the latter half of 1990s most seriously affected Indonesia, Thailand, Malaysia and South Korea. The cause of the crisis was

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Last updated 23 May 2026, 3:31 pm IST
  1. Amismanagement of the financial resources and financial sector, in generalCorrect
  2. Bthe prolonged over-valuation of local currencies vis-a-vis the western currencies
  3. Cthe downswing and recession in the western economies which earlier provided export market to these export-oriented countries
  4. DNone of the above

Explanation

The 1997 East Asian financial crisis was primarily caused by the mismanagement of financial resources and the banking sector. In the years leading up to the crisis, these nations experienced a massive influx of foreign capital which was often directed into unproductive assets like real estate or speculative projects. Weak regulatory oversight and crony capitalism led to a buildup of risky short-term foreign debt. When investors lost confidence and began withdrawing their capital, the fragile financial systems could not sustain the pressure, leading to a collapse of their currencies and economies. While currency values and export markets played a role, the structural flaws within their financial sectors were the fundamental cause.
economy: The economic crisis in the latter half of 1990s most seriously affected Indonesia, Thailand, Malaysia and South Korea. T
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