What this lesson teaches
I can judge how much Southeast Asian economies changed after independence, sector by sector.
Syllabus 9174, Paper 2, Theme II, Learning Outcomes. evaluate the extent of economic change in different contexts and over time
Make a guess
In the 1990s Indonesia and Thailand quickly opened their banks to foreign borrowing. What do you think this led to?
- Steady benefits, with no real new risks to worry about.
- Banks closing as foreign money stayed away.
- Fast growth, but also new risks that hit in 1997.
Show the answer
Fast growth, but also new risks that hit in 1997.
Hundreds of new banks and heavy foreign borrowing fuelled growth, but left these economies exposed when money fled in the crisis.
Economies became more varied, and finance grew fast in some. Rapid opening of the financial sector in the 1990s also created new risks.
Singapore built a financial centre. From 1968 it allowed banks to trade in US dollars offshore, creating the Asian Dollar Market. Finance and business services became a pillar of its economy.
Other countries opened their financial sectors in the 1980s and 1990s. Indonesia freed its banks from many controls in 1983 and 1988, and hundreds of new banks opened. From 1993 Thailand made it easy for banks to borrow abroad.
Opening up quickly without strong rules created risks. Banks borrowed short-term in foreign currencies and lent for property and shares. This helped cause the Asian Financial Crisis of 1997.
Diversification varied. Malaysia moved from rubber and tin to palm oil, oil and gas, and electronics. Indonesia moved from dependence on oil, more than two-thirds of its exports in the early 1980s, to manufactured exports. Burma remained dependent on farming and raw materials.
The importance of each sector changed. Agriculture's share of output fell everywhere, while manufacturing and services grew. The pace of change differed between countries.
- Asian Dollar Market
- Singapore, 1968.
- Indonesia
- Banking controls lifted in 1983 and 1988.
- Risk
- Short-term foreign borrowing before 1997.
Worked example: Measuring diversification
How diversified were economies by 2000?
- Singapore: manufacturing and services, almost no farming.
- Malaysia: commodities, oil and electronics.
- Indonesia: oil plus manufactured exports.
- Burma: still farming and raw materials.
Watch out for this
Opening the financial sector only brought benefits.
It brought investment and growth, but without strong rules it allowed risky foreign borrowing that helped cause the 1997 crisis.
Check your understanding
What did Singapore create in 1968?
- A rice research institute
- A national car company
- The Asian Dollar Market
Show the answer
The Asian Dollar Market
Right. It helped make Singapore a financial centre.