Question

Write on the 1980s debt crisis and the 1990s Asian financial crisis. What have been some international-level forces contributing to these two crises? What have been some domestic forces contributing to the same two crises? How did these crises illustrate the concerns of moral hazard and contagion? Please cite the textbook in your answer.

Answer 1

Although the two decades face the financial crises, the nature of crisis was much different from each other in both decades. The crisis of 1980s was associated with debt crisis which made countries like latin America to be declared as bankrupt. On the other hand, the 1990s crfisis was more scattered and could be understood as an aftermath consequence of 1980s crisis and occurred majorly because of short term commerical bank debt.

The major reasons for 1980s crisis were huge official grangts and loans mostly on concessional rates with long maturities and grace period and long term commercial bank loans from outside as well. The 1990s crisis occurred mainly because of over granting of short term commerical bank loans and securities which led to overflow of funds causing the developing countries to become inabe to repay the debt.