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  • 1. Group name: Jelena JankovicGroup member: Loh Moi Sin, Santhiyah Munisamy, Seela Kumar, Rema Sridaran, CharmilaaSilvaduray, Goo Wooi SinTopic: The fluctuation of US dollar and its effect toward world economy1.0 IntroductionMovements in the US dollar have important implications for the prospects for world economic growth. Thisis because United States is an important destination for exports from other economies. A markedappreciation of the US dollar, for example, will increase the purchasing power of US consumers, importdemand and so on. Higher import demand in the United States will lead to improved export and alsoeconomic performance in many international economies especially those in Middle East, Asian, andAustralia. The US dollar has strengthened significantly on a trade weighted basis over the past few years. It’srelated with the appreciation of the currency; import demand in the United States has increasedsubstantially, leading to a marked widening of the trade imbalance. There has been considerable debateabout the sustainability of the significant increase in the value of the US dollar. If the US dollar were todepreciate sharply in the short term, there would be adverse effects on world economic growth, and henceworld commodity demand and prices. This is because the world economy is still very much dependent onthe United States as a growth engine. A sharp reduction in US import demand in the near future has thepotential to markedly weaken world economic growth. Our research divided into four sections which are research motivation and significance, scope ofresearch, literature review and last is discussion and finding. In scope of research, we mentioned whichcountries that we focused on and year that involved in crisis. Our main objective is to study the fluctuationof US dollar and its effect towards world economy. From research motivation and significance section, wementioned that for whom our research report will contribute to. Literature review section is mentioned withthe effects of the crisis toward, Asian, Australia, Africa and Middle East. Last section, discussion andfinding are discussed about the few effects that chose from literature review. Finally we conclude what wehave done in this research.1.1 Background 1
  • 2. The world economy is currently suffering a global financial and economic crisis that has become severesince the second half of 2008. This global financial situation was triggered by the subprime mortgage crisisin the United States, which became apparent from mid-2007. East Asia did not escape. The subprimemortgage crisis in the United States is far more complicated, for several reasons, than any series of crisesin the past. For example, in the Great Depression of 1929-1930s, the Savings and Loan [S&L] crisis in theUnited States. In the 1980-1990, the Long Term Capital Management [LTCM] crisis in the United States in1998, and the bursting of the Information Technology bubble of 2000-2010. The current crisis appears unique in the sense that the US dollar, the currency at the epicenter ofthe current global crisis, has strengthened against almost all foreign currencies, except the Japanese yenand the Chinese Yuan. This differs from past experiences when the currencies of the crisis-originatingcountries tended to reduce their values against other currencies. This unique situation reflected theincreased demand for the US dollar in the de-leveraging process—mainly through a withdrawal by USinvestors from global stock investment. It also reflects the fact that the crisis’s contagion reduced the pricesof almost all financial assets worldwide, so that investors could have regarded some US financial assetssuch as US treasury securities as safer than other foreign assets, Shirai (2009). With respect to the type of currency used, the US dollar and euro were the most frequently-usedcurrencies for cross-border banking activities However, when only the currencies used in transactions asforeign currencies were considered, it is clear that the US dollar was the most dominant foreign currency incross-border banking activities. Both borrowing and lending conducted by banks operating in the UnitedKingdom were dominated by US dollars. Even though the euro was the next most important currency, itsuse was relatively limited.1.2 Objective1. To study the fluctuation of US dollar and its effects toward Asia.2. To study the fluctuation of US dollar and its effects toward Middle East.3. To study the fluctuation of US dollar and its effects toward Australia.4. To study the fluctuation of US dollar and its effects toward Africa.1.3 Research motivation and significance 2
  • 3. The research done has combined the fluctuation of US dollar and its effects toward Asia, Middle East,Australia, and Africa. The report is beneficial to the investors, bankers, and financial sector that active inmortgage activity. They may more understand about this issue through our report and well plan for theirfuture financial development. Besides, they also can understand and take this crisis as an experience forfuture. Take the history as part for the solution and well prepared for future on it.1.4 Scope of ResearchAsia, Australia, Africa, Middle East and US have the close relationship in the economy aspect. US are theimportant support for the economy of those countries. There are a lot of impacts toward those continentsafter US dollar fluctuation. Our research on US dollar fluctuation mostly focus in exchange rate, economy,import & export, commodity, financial market,2.0 Literature ReviewIn this section, we will discuss some theoretical evidence put forth by economists. That is addressingrespective theories associated with US dollar fluctuation towards world economy. There are three directions for the effects of an unanticipated appreciation of the dollar on theeconomy. The first channel is on the demand-side through the effects of appreciation US dollar inincreasing imports and decreasing exports. The result is a contraction of aggregate demand. The secondchannel is through the effect of appreciation US dollar in decreasing the demand for the dollar as agentsexpect the exchange rate to return to its anticipated steady-state value. The result is an expansion ofaggregate demand. On the supply side, appreciation allows producers to buy cheaper intermediate goods.The result is an expansion of the output supplied. The combined effects of the three channels remainindeterminate on variables in the labor market, employment and the nominal wage, Mirzaie & Magda (2002) Mohsen et al., (2010) show that the Africa economic growth was conditioned by the changes incommodity prices. Commodities in South Africa had plays an important role in their economies which derivethe majority of their merchandise export. The domestic produced good had become highly concentrated byAfrica government. The decline in value of U.S imports from Africa largely reflects the decline in oil price.The value of total U.S trade with Africa had increased between the year of 2007 and 2008 which had beengives reflects to commodity price. 3
  • 4. Rogoff and Maurice (2009) said the oil demand and supply have direct relation which United Statefinancial crisis. Oil was perceived by all customer and oil producers of US. These effects depend oncurrency that had been used in transactions linked to oil activities because the oil which has beenpurchased is paid using dollar currency. The dollar depreciation generally tends to decrease the oil inconsumer countries which can lead to an increase real income and increase in Middle East oil demand. The fluctuations of U.S. dollar give direct impact on Iraq’s economy. The exchanges rate within U.S.dollar gives positive impact into Iraq’s economy. United stated is one of country which is depend on oilimports had been forced to preserve large stockpiles of dollar because of the status of the United Statesdollar as world’s dominant reserve currency and as he currency in which the oil is priced. Increased inexchange rate will give a negative impact on the real GDP due to Iraq which give negative impact onexports because relative prices of exported oil become higher, Fezzani & Nartova (2011) There are three factors that affect the oil price because of movement in dollar effective exchangerate in Middle Eastern countries. The first factor is changes in oil demand and supply. This change happenoccurs because of have change in dollar exchange rate. However the changes in oil price also can effectchanges in oil demand and supply. The second factor is reserve causality which happen when havechanges in oil price. The third factor is that affect the oil price which occur of movement in the dollareffective exchange rate is stock of portfolio model, Kandil & Mirzaie (2000) An increased in export value and volumes for selected products that export by African countrydepend to four factor. The first factor is demand and growth and increased price in global and exportmarket which is related on U.S dollar rate. The second factor is foreign and domestic investment in newand expanded production capacity. While the third factor is African government policies which ablepromoting Sub-Sahara Africa (SSA) into export market and the four factors which can affect U.S dollarfluctuation toward Africa countries is external policies that provided tariff preferences into African products,Daniel & Sara (2007) The sharp increase in US dollar associated with significant capital inflows into the United States.As US dollar continue to appreciate it has been more than sufficient to finance the current account deficit.Therefore, due to the increase in the capital inflows, it has allows an increase in spending of both businessand households. However, the slowdown of capital inflows at a later time may lead to the depreciation ofthe US exchange rate. According to Jammie and Maurer (2002), depreciation in US dollar would affect the 4
  • 5. world economic growth. A sharp decline in the US dollar will affect the Asian domestic demand to beweaker and latter trigger a slump in consumer and business confidence. The appreciation or depreciation inUS dollar adversely affect the major world economics like Japan, United States, Western Euro, Non-JapanAsia, Australia and so forth countries. Click (2009) mention shat each local currency is tied to some combination of the dollar, yen, euro,and the pound in the long run. All of it is to clearly define the US dollar standard in the long run relationship.It mainly focuses on five original members of ASEAN such as Malaysia, Indonesia, Philippines, Singaporeand Thailand. Through the studies, it is suggested that the ASEAN is on dollar standard although it is notas perfect as it should be. The result shows there is a wide diversity of influence on ASEAN exchange rates.Hence, the fluctuation influences on ASEAN exchange rate in both long run and short run because theresults shows that the US dollar standard presumed to prevail in ASEAN. The result is difference betweenthe long run and short run. It is possible for ASEAN to on dollar standard in a short run which evolves into apound standard in the long run as competition, trade and capital inflows among the US, UK and even theeuro area causing the bilateral exchange rates to adjust the equilibrium. The financial crisis which hails in Malaysia has caused numerous impacts to the country’seconomy. It has impact the KLSE (Kuala Lumpur Stock Exchange), impacts on the business confidencelevels, the foreign direct investment, industrial and manufacturing sector, trade and monetary policies andeven the financial sector, Bakar & Ariff (1999). The fluctuation in financial crisis is highly sensitive toeconomic fluctuation whereas the GDP shows and upward trend in the number of sales. Thus, to overcome,it has been suggested to build a good governance and regulatory framework, restructuring and upgradingthe industrial and technology base, also to concentrate in the foreign direct investment and also bycontinuing to pursue liberalization. Khor (2005) said the financial crisis of the fluctuation has led to the depreciation in commodityexport prices. Therefore, in Malaysia the ringgit had been under speculative attack and declinedsignificantly. There were two mechanisms driving the short-selling. The first, speculator sold the ringgit inthe forward market at the current exchange rate with a view to deliver the ringgit to a future date. Second,speculator borrowed ringgit in order to sell it presently and hold dollars. This action unknowingly contributedto the weakening of the ringgit demand as the US dollar increased. However, the currency depreciation hadseveral negative effects. It has increased the burden of external debt servicing, continues changes in 5
  • 6. exchange rate, the prospect to the continuous decline in the ringgits rate which contributed to the sharp fallin the value of share in stock market and inflow of foreign portfolio funds. The yen/dollar exchange rate marked rise in intra East Asian trade followed by a relative decline intrade with the rest of the world. The question that arises is why the fluctuation in the yen/dollar rate hassuch persuasive effects on EA smaller economies. It is because of the dollar pegging before and after theGreat East Asian Crisis. The high frequency pegging in dollar became robust. So, as the yen/dollarfluctuates the asymmetry between Japan does not peg the dollar and other stage for the synchronized EastAsian business cycle. On measuring the output of fluctuation, in large countries like Japan, China, UnitedStates has influenced the output in East Asian economies. The findings states that the business cycle inChina and US have no impact on the output fluctuation on East Asia countries as the business cycle in thesmall EA economy is strong. However, Japan output changes have a significant impact on six countries likeHong Kong, Indonesia, Korea, Malaysia, Taiwan and Thailand. The estimation shows that either US orJapan, EA countries may significantly influence the fluctuation in China’s output, Schnabl and McKinnon(2002). In Africa, despite the sub-prime crisis, the countries had an excellent economic growth. The strongeconomic growth includes the macroeconomics reforms. However, in the pending downturn since 2007,Africa faces serious uncertainties over its growth and development prospects. Due to the current financialsituation and economic crisis, Africa’s growths have been affected. It has faced a falling in the demand andprices of commodities, a slump declining in capital inflows. Thus, the global crisis and economic crisis likedollar fluctuation has an impact on Africa’s banking system, trades, capital inflow in Foreign DirectInvestment and short term private inflow, exchange rates, commodity like textile, mining sectors and soforth, rising of sovereign debt and collapse in financial market. Jammie and Maurer (2002) stated that the US dollar fluctuation that the financial crisis results ineffecting on global imbalances which are debated among the economist as well as the policymakers. Theregional financial imperfections and unbalanced growth pattern in emerging market economies and oilexporters contribute near to the ground global interest rate, discourage monetary policy, and the ricketypolitical situation in Asian countries. It is confirm that the linkage between Asian economies and thedeveloped countries remains strong and the financial crisis affects the Asian economies through both tradeand financial channels. In fact, these economies fluctuate drastically in monetary, exchange rate and fiscalsystem. 6
  • 7. It stems from a slowdown in the domestic demand in the US about 3.5 percent close to thecumulative weakening in its GDP. The slow movement arises in both domestic expenditure and privateinvestment with the fall over to other economies. In this case, Korea suffers the most and then followed byChina, Click (2009). The main factor why China foresees a larger loss than other economies is because ofits implementation of the floating exchange rate regime against the US dollar. They have even mentionedthat the world economies growth has slid significantly not only due to the US slowdown but also because ofindividual domestic factors as well as the worsening global economic conditions. To illustrate, a slowdownin G3 economies which is the US, Japan and the euro area of 1 percent may more than double the lossessuffered by emerging Asia caused by a slowdown in the US alone of the same size, depending on thepolicy responses and exchange rate regimes of regional economies. Eventually, when it happens to face the US dollar fluctuation, it will definitely affect the equilibriumlevel of output. It means that the aggregate demand, the amount of goods and services demanded by allsectors in economy at each level price. So, the US dollar fluctuation will effect and alter the movementbetween the price level and demand in each sector. There are several types of spending which areprobably disrupted by the dollar fluctuation. They are the consumption spending, investment spending,government spending and the net worth, Nartova & Fezzani (2011)3.0 Discussion and findings3.1 Impacts on economy3.1.1 Economy of OntarioThe fluctuation of US dollar has its impact on Ontario, Canada economy as well. The recent slump in themanufacturing sector was stimulated by the effect of the rising dollar on Ontario exports. Meaning to say,the impact of the recession together with the economic downturn has result the manufacturers to shut theirbusiness, employees lost their job, consumer has restricted their spending. Therefore, they were anincrease effects on local and province-wide economies.3.1.2 Economy of IndiaIn terms of economy, the Indian Rupee appreciation against the dollar has impacted heavily on severalfactors like export, import and foreign investors. Exports from India are of handicrafts, gems, jewellery,textiles and so forth items and it is mentioned that the export items contribute substantially to foreign receipt. 7
  • 8. So, when the dollar appreciates highly against the rupee, the exporters stood to gain the $1 which is equalsto Rs.48 but lately due to the appreciation in Rupee the value slopes down to Rs.39.35 equals $1, whichthe range drag away the profit margins of exporters and balance of payment services providers to besimilar. Next, toward the imports where the scenario is that the importers do need to pay only Rs 39.35instead of Rs48. So, we conclude this gain will likely to create savings in cost, which will be passed toconsumers to control the inflation. In addition, the dollar fluctuations do also effect the foreign investmentinto India. This is because the foreign investment in India contributes well to dollar depreciation againstdollar.3.2 Impacts on financial market3.2.1 Financial market of AsiaNext, the financial market contagions, due to the US dollar fluctuation, the Asian countries had alsoconfronted by badly hurt of financial sectors apart from the negative effects through trade channels. Thesame author comes to explain that the balance sheets of banks are insolvent, therefore the capital outflowshave been out of control and the stock markets have been strained. The financial contagion has been morecomplicated and challenging than the international trade where the transmission mechanisms through tradeare much more straightforward. Besides, economies like Japan and Hong Kong in this area have enjoyedalmost perfect capital mobility. However, capital control is still binding on the mainland. It is necessary tobreak down the financial channels of propagation in order to fully capture the role they may play intransmitting the infections as the relative importance of various financial channels can differ acrosseconomies.3.2.2 Financial markets of AfricaAs mentioned earlier, even though African banking system does not indirectly exposed to any subprimecrisis, it has to be note that there were still a strong indication of increased asset price and risk premiumvolatility on the financial market in early 2008. Since, Africa is fairly liquid financial market, it has not onlysuffered from the contagious effect but also faced amplification and possibly attributable to the over-valuation of stocks and the outflow of portfolio investments. Therefore, the African as well as the Egyptianand Nigerian investors have faced an average loss of more than half the wealth invested and it is higherthan the losses bear by the American, French and Japanese markets. 8
  • 9. 3.3 Impacts on banking sector3.3.1 Asia banking sectorFinally, it comes to the banking sector corruption, as have mentioned in the earlier part the US dollarfluctuation has damaged the balance sheet of the banks in US by deepening the credit crisis. Therefore,the complements in other economies have become more risk unenthusiastic and attempt to conservecapital to decline in international economic outlook and tighten the loan principles. US banks becameunwilling to provide US dollar to their nobles in EMEAP economies, banks in this area have increased theirborrowings in currencies other than the US dollar and actively converted them into the US dollar throughforeign exchange swaps. So, this also contributed to the monetary tightening conditions, policy interestrates have been concentrated and liquidity conditions have decline, additional weighing on the alreadydiminishing real economic sectors. Moreover, the credit spread is similar to the external finance premiumrelative to a risk-free rate in the framework of a monetary accelerator.3.3.2 Africa banking sectorDue to the low level of financial integration, African economies were relatively isolated from the directimpact of the financial crisis. Africa came to find that they are being shielded from the impact of the 2007sub-prime and the 2008 banking crisis, thereby avoiding the effects of a financial crisis that affected thevery foundation of international financial market. As the Africa’s stock market capitalization is very low,therefore the low financial integration indicators explained how Africa had escaped both the sub-prime andbanking crises. So, there was no country in Africa announced for the bank rescue and there were nodifficulties reported on African sovereign wealth funds and the eventual impact on their returns. Furthermore, they have not engaged in complex derivatives products and not heavily dependent onexternal financing. The contagion effect was worse only by the entry of foreign bank presence. The foreignbanking institution suffered drastic losses in stock capitalization and profit during the financial crisis.However, the financial meltdown suffered by the parent bank was not passed down to the Africansubsidiaries. The contagion effect of financial meltdown is much weaker compared to the effect on parentbanks. Besides, the sterilization of such reserves and their conversion into foreign assets helped thecountries avoid strong exchange rate appreciation. Nevertheless, sovereign funds are expected to drop, inline with other financial wealth instruments on the global market. Plus, it is certain that the fall in oil priceswill contribute to a dramatic reduction in the investment capacity and the size of funds. 9
  • 10. 3.4 Credit crisis in AsiaFollowed by the flight to quality across borders is the credit crisis spread from the US to other regions. Ithas been distressed by the International Monetary Fund that the net capital inflow into emerging Asia willdrop sharply in 2009. Therefore, it has been found that the country risk premium measured as thesovereign spreads relative to the US treasury bonds. Related to that issue Korea and the EMEAP6 havefaced a large increase in country risk premium while Japan has only seen a modest rise. The flight tocapital may affect an economy by two ways. The first, it would exacerbate the worsening domestic liquidityconditions and dampen economic growth. Second, by adding depreciation pressure to regional currenciesagainst the US dollar and may improve trade balance in these economies. Plus, a depreciation of domesticcurrency would exert beneficial valuation effects on foreign assets denominated in the US dollar for acreditor economy and negative valuation effects for a debtor economy.3.5 Impacts on stock market3.5.1 Asia stock marketFinally, it comes to the stock market infection and this happens as the third financial channel through whichthe US credit crisis spreads to other economies. Eventually, the significant drop in the US stock pricesaffects the stock market in other regions. Global institutional investors and hedge funds tried to reduceexposure to emerging markets where the net equity outflows have hit many regional markets. Firms reducetheir investment and dampen consumption which leads to slower economic growth. As the equity marketplay a more important role in firms fund raising in the Asia economics, it is necessary to consider therelative importance of stock markets in firms financing in each economy.3.5.2 Africa stock marketA major stock market index which tracks the performance of large companies based South African,declined 194 points or 2.82 % during the last month. During the last 12 months, the JALSH rallied 926points or 2.82 %, reaching a high of 34386.97 points in February of 2012 and a low of 29257.97 point inaugust of 2011. Historically from 1995 until 2012 the JALSH market value averaged 13931.68 pointsreaching an historical high of 34386.97 points in February of 2012 and a record low of 4308.02 points inSeptember of 1998.3.6 Impacts on exchange rate 10
  • 11. 3.6.1 Exchange rate in AsiaThe fluctuation in dollar produces a great impact to the world economy. It increases the uncertainty for theforecast of investors and latter effect their decision making process. Therefore, the cost of internationaltrade transaction will rise according to the exchange rate fluctuation. In such cases, the foreign debtors anddollar based asset holders will tend to face more severe crash. Despite, the fluctuation in dollar exchangerate would benefit the international speculative capital of an opportunity, which would make certain thedisturbance at the financial market in most countries.3.6.2 Exchange rate in Canada and OntarioSince most of this country’s trade is mostly with the US, the strength of their dollar against the US dollar isimportant. Here, the exchange rate is referred to the value of Canadian dollar against the currency of othercountries. There is no set value for their currency as Canada is practicing the floating exchange rate.Somewhat, the value is being affected by the supply and demand for Canadian dollars in internationalexchange markets. Some other factors that might influence the supply and demand of exchange rateinclude the interest rates, inflation rates and also the investors’ confidence in Canadian economy. However,the remark is that the value of the dollar will go up if the demand exceeds supply and vice versa.3.6.3 Exchange rate in AfricaThe volatility of U.S. dollar as a reserve currency also had a strong effect on African currencies. The dollarrose sharply against all currencies, amplifying the depreciations that were triggered by other externalfactors. The dollar gained 11 percent between June 2008 and March 2009, which accounts for slightly morethan half the depreciation in Nigeria, Uganda, and Kenya which about 40 percent of the depreciation of theZambian kwacha. Subsequently, the U.S. dollar fell, shedding 6 percent by September from its March peakwith respect to the euro. This matches almost all the appreciation in Kenya and Uganda shillings and about30 percent of gains in the Zambian kwacha. The impact of the financial crisis manifested through the currency fluctuation, especially against USdollar or the Euro. So, the depreciation of some currencies is attributable to the impact of the financial crisison commodity prices and the decline in the foreign exchange reserves. To illustrate the situation, the dropin copper price of 65.8 percent leads to significant fall in Zambia’s foreign reserves. The Zambian exchange 11
  • 12. rate to the US dollar decreases in value sharply in 2008 by 50 percent, although the exchange rateimproved a little at the end of the year.3.6.4 Exchange Rate Middle EastAs oil trade from Middle East Countries such as Iraq, Iran, Saudi Arabia, United Arab Emirates, Libya, andKuwait is dominated in US dollars, movement in the dollar effective exchange rate affect the price of oil asperceived by all countries outside the United States. Hence, change in the dollar exchange rate can causechanges in oil demand and supply, eventually changes in the oil price itself. Secondly, the reserve causalitycan also be found, as changes in oil prices may well influence the effective exchange rate of the dollar. Forexample, the exchange rate will value if a country accumulates foreign assets, and this movement occurwithout looming its current account balance. It is because the capital income takes over the lost in tradereceipts induced by deteriorated competitiveness. Third, stock of portfolio model also will influenced by theUS dollar fluctuation. They were designed to take account trade and financial interaction between UnitedStates, and Middle East countries.3.7 Impacts on value trade of AfricaThe value of total U.S trade with Africa had increased by about 29% between the year of 2007 and 2008.After the continuous growth within the three years the value of Africa’s exports to United States decreasedin value by about 57% in the first six months of 2009. U.S exports to Africa decreased in value by about 9%.The decline in value of U.S imports from Africa largely reflects the decline in oil price from late 2008through early 2009, as oil and mineral fuel account for about 80% of all U.S imports from Africa, and 92% ofall U.S. import. Petroleum imports did not decrease in volume as dramatically as they did in value, howeverthe decrease in U.S. and global consumption are likely to continue to have a negative effect on most exportfrom the region.3.8 Impacts on commodity3.8.1 Commodity of AfricaCommodities had play an important role in the economies of most the 24 countries in Western and CentralAfrica (WCA), which derive the majority of their merchandise export revenues from one single commodityor several commodities. Most WCA economies developed positively between 1999 and 2005, althoughdifferences between net oil-exporting and importing countries were clear. Net oil exporters recorded the 12
  • 13. highest growth rates, mainly supported by rising investment and exports on the back of record oil pricesand expanding oil in some countries. Rising oil prices make burden on WCA economies, which oftencounteracting benefits accruing from rising prices for their own main export products, Pearson et al., (2007) In Africa, the commodity exports have been the main driven of growth. The strong growth inindustrialized and emerging countries like India and China has been an important factor of the increase ofprices and demand for commodities. The financial crisis adversely had a negative impact on the worldgrowth prospects and seriously dampened the expectation on commodity futures markets, including fallingprices and demand for most commodities. For example, the price of crude oil dropped by 65 percent fromUSD 125.73 per barrel to USD 43.48 in January 2009. The impact of the crisis on exports commodity pricesand resources inflows threatens to reserve the gains from the recent economic performance of Africaneconomies. The consequence are such as declining reserves, non-profitability of some oil fields that havehigh extraction costs, reduction in government funding capacity and cancellation of postponement of anumber of investment in extractive industries which is highly dependent on foreign direct investment.3.8.2 Commodity of AustraliaAccording to Penm et al., (2002), world commodity prices are mostly denominated in US dollars. As a result,depreciation of the US dollar against the currencies of commodity importing countries is equivalent to anincrease in these countries’ purchasing power. Let’s assume other things are unchanged. The increases inthe purchasing power would provide support for commodity prices on world markets.Agricultural commoditiesExports of food products have been growing rapidly in recent years as consumer incomes have increasedin importing countries. Given the relative significance of the effects, the analysis is focused on theimplications for international agricultural markets.Grains Wheat’s world indicator price was getting higher. This result that world demand for wheat isrelatively less sensitive to changes in incomes. Consequently, the increases in the purchasing power ofwheat importing countries would more than offset the adverse effects of lower income growth. It alsoreflected lower income growth and a sharply weaker US dollar. These increases in wheat imports, togetherwith a reduction in wheat exports, would lead to an increase in wheat prices on international markets. The 13
  • 14. United States is the world’s largest exporter of coarse grains which was accounting for more than 40 percent of world sales.Livestock products For livestock products, there would be downward pressure on world prices because of therelatively higher sensitivity of demand for these products to changes in income growth. Beef imports forAsia as a whole have declined. Over the past year, beef consumption in Japan has been adversely affectedby the confirmation of BSE (bovine spongiform encephalopathy or ‘mad cow’ disease). After initially fallingby around 70 per cent following the first confirmed BSE case in September 2001, beef consumption inJapan remains weak, with a year on year declined of 23 per cent in June 2002. Given current weakconsumer confidence, a significant weakening in Japan’s income growth in the near future could result inmore significant declines in both beef consumption and imports. A sharply lower import demand from Japanwould place significant downward pressure on prices in Pacific markets. Around half of the Australian woolexports to China were processed and then exported as textiles and apparel to other countries. Australiaalso exports a significant proportion of wool to Western Europe, Korea, Taipei and Japan. While demandfor apparel and wool could increase marginally in Western Europe, lower income growth in the UnitedStates, Japan and other Asian countries would adversely affect the demand for apparel, leading to reduceddemand for Australian wool. Wool prices were denominated in Australian dollars, the direction of movements in the Australianexchange rate. Against the major importing countries, it also has an impact on international demand forAustralian wool. A depreciation of the Australian dollar against the euro, the Japanese yen, and other Asiancurrencies would help to partly offset the adverse effect on wool consumption of lower income growth inthese regions. But a sharply lower value of the US dollar would weaken apparel, and hence wool demandeven more in the United States. Against the US dollar, the prices received by Australian exporters declinedfor wheat, coarse grains, oilseeds, dairy products and beef.Mineral resources A sharp depreciation of the US dollar would adversely affect world demand for mineral resources.Consumption of these products in the major world economies is sensitive to changes in general economic 14
  • 15. activity, especially to changes in industrial production. Lower world income growth would place significantdownward pressures on demand and prices on world markets. The downward pressures of lower incomegrowth on world mineral resources prices would more than offset the support provided by an increase in thepurchasing power of importing countries. That was as a result of a sharply lower US dollar. For Australianproducers of mineral resources, the adverse effects of lower world prices seriously affected by a possibleappreciation of the Australian exchange rate against the US dollar. The impact on the price of gold might be different from other mineral resources Gold is also aninvestment asset in addition to the demand associated with fabrication. When the US dollar depreciatessharply, investors could switch funds away from US dollar denominated assets and toward gold. This couldplace upward pressure on the price of gold. The United States is the destination for Australia’s exports ofmineral resources. In 2001-02, Australia’s main minerals and energy exports to that country included oiland gas, aluminum, iron and steel and refined zinc. The United States is the destination for Australia’sexports of crude oil, aluminum and iron and steel and exports of refined zinc. Although the United States isnot a major importer of Australian minerals and energy commodities, lower import demand formanufactured products in the US market would adversely affect the demand for mineral resources in itsmajor trading partners.3.9 Impact on commodity export and import of Africa3.9.1 Commodity exportSouth African exports were worth 56.3 billion ZAR February of 2012. South Africa has rich mineralresources. It is world’s largest producer and exporter of gold and platinum and also exports a significantamount of coal. Another major export is diamonds. South African’s major exports partners include UnitedKingdom, United States, Germany, Italy and Japan. Export goods or services are provided to foreign consumers by domestic producers. It is a goodthat is sent to another country sale. Export of commercial quantities of goods normally requires involvementof the customers authorities in the both the country of export and the country of import. The advert of smalltrades over the interest such as through e-Bay have largely by approved the involvement of customers inmany countries due the low individual of these trades. These unimportant exports are still subject to legalrestrictions applied by the country of exports. 15
  • 16. 3.9.2 Commodity importSouth Africa imports were worth 63.7 billion ZAR in February of 2012. South Africa imports mainlymachinery, foodstuffs, equipment’s, chemicals petroleum products and scientific instruments. An import isany good or services brought into one country in legitimate fashion, typically for use in trade. Import goodsor services are provided to domestic consumers by foreign producers. An import in the receiving country isan export to the sending country. Imports were along with exports, from the basis of the international trade.Import of goods normally requires involvement of the customs authorize in the both country of import andthe country of export and often the subject to import quotes tariffs and trade agreements. 16
  • 17. 3.10 Impacts on Middle East3.10.1 Oil salesMiddle East countries are well known as large oil producers. Most oil sales especially in Middle East aredominated by United States dollar (USD). This fact had been supported by proponent of the petrodollarwarfare hypothesis; because according to the hypothesis most countries which are depend on oil importshad been forced to preserve a large stockpile of dollars in order to continue their imports. These countriesneed to preserve large stockpiles of dollar because of the status of the United States dollar as the world’sdominant reserve currency and as the currency in which oil is priced, Fezzani & Nartova (2008) The impact of US dollar effective exchange rate is seen on oil demand and supply, since it affectsthe price of oil which is produced by Middle East countries. The oil was perceived by all customers and oilproducers outside of US. These effects depend on currency used in different transactions linked to oilactivities. Moreover, the US dollar fluctuation also effect on demand. The oil which has been purchased arepaid using dollar. However, demand depend on the domestic price for consumer countries which usually changeaccording to dollar fluctuation. Therefore, the dollar depreciation can reduce the oil price in domesticcurrency for countries with a floating currency. The dollar depreciation generally tends to decrease the oilprice in consumer countries. Based on this situation, it can lead to an increase in their real income andincrease in their oil demand. Therefore, the dollar depreciation prior has a positive impact on oil demandand should contribute to raise the price. On the other hand, the US dollar fluctuation also can effect on supply of oil. Normally, the oilcompany use domestic currency of procedure countries to pay their employees, taxes, and other causewhich the currency are often linked to the dollar because of the fixed exchange rate regimes adapted bymost producer countries. As a consequence, dollar changes perhaps affect the price as perceived by theproducer than the one perceived by demanded. Besides that, dollar depreciation can also cause inflation and reduce the income in oil producercountry because the currencies are linked to the dollar. Organizational of petroleum exporting country(OPEC) that import a lot of from United States is less affected than countries that import more from Europe 17
  • 18. or Asia. The increase inflation and the decrease in purchasing power reduced the real disposable incomeand therefore available for drilling, everything else equal. Overall, the dollar depreciation may result in a deduction in oil supply. The dollar effectivedepreciation cause an increase in oil demand and the deduction in supply, mainly on the long run whichtends to boost oil price. According to Ariff & Abubakar (1999), the increase in oil price stems from tosimultaneous factors, first is strong surge badly anticipated of oil demand particularly in United States.Second is, dwindling investment in the oil sector that lead to stagnation of production capacity. However,those demand and supply effects the dollar depreciation which associated to a drop in oil price, not raise.The dollar depreciation required to stabilize the US external position. However, it is not complete since itoverlooks the multilateral natural of exchange rate, Kandil & Mirzaie (2002).3.11 Impacts on bonds3.11.1 Middle East bondThe economic conditions in the United States create a consistent demand for USDs and upward pressureon the USD’s value. This situation allows the US government gain revenues through issuing bonds at lowerinterest rates. As a result the U.S. government able run higher budget deficits at more sustainable levelcompare to other countries. The stronger USD will able make the imported goods into United States arerelatively cheap, Bahami-Oskooee et al., (2010)3.11.2 Government bond of AfricaA government bond is a bond issued by a national government denominated in the country’s own currency.Bond issued by national governments in foreign currencies is normally referred to as sovereign bonds.Africa’s government’s bond yield for 10 year notes declined 0 basis points during the last 30 days whichmeans it became less expensive for Africa to borrow money from investors. During the last 12 months,Africa government bond yield declining 0.26 %. From 1997 until 2011 South Africa’s government bond yieldfor 10 year notes averaged 10.83 % reaching an historical high of 20.69 % in august of 1998 and a recordlow of 7.14% in February of 2006. Generally, a government bond is issued by a national government and isdenominated in the country’s own currency. Bond issued by national government in foreign currencies isnormally referred to as sovereign bonds. The yield required by investor’s to loan funds to governmentsreflects inflation expectations and the likelihood that the debt will be repaid. 18
  • 19. 3.12 Impact on Australian dollarAn important factor of the impact on Australian commodity exports is movements in the Australian dollar.There would be considerable uncertainty surrounding the direction of movements in the Australian dollarwhen US dollar in sharp depreciation. While a sharp decline in the value of the US dollar would lead to anappreciation of the Australian exchange rate, weaker world economic growth, and hence lower worldcommodity demand, could place considerable downward pressure on the Australian dollar. Weighing theseopposing effects, a possible outcome is that the Australian dollar would appreciate against the US dollar.3.13 Impacts on importers and exportersAs usual the fluctuation has a direct effect on Ontario’s business as well mainly to the importers andexporters. For example, let’s assume company exports sports accessories to the United States. It will costmore for an American to buy the accessories if the Canadian dollar rises. This will definitely result insmaller amount of sales for the Ontario’s company. Therefore, if the company keeps its prices constant tomaintain the market share, it makes less profit on each sport accessories that are being sell. Hence, if thedollar falls, the situation is vice versa. The sport accessories are a better deal for better selling and therewill be an increase in profit margin.3.14 Impact on consumer in OntarioIn this term, the rising dollar benefits not only the company for their good business but also the customer asthe saving can be passed on. The Canadian exports now contain about 40 percent imported content. As aresult, it can be said that a higher dollar lowers the cost of the imported components which offset the effecton the business of the export price. The Ontarians keep a careful track of the fluctuating dollar because astronger Canadian dollar means greater purchasing power. In fact, a falling dollar can impact the consumervery much because the purchasing power is reduced when the Ontarians are obliged to pay more inCanadian dollars for imported goods. As the prices mounts the Bank of Canada may require increasing theinterest rates to control inflation. 19
  • 20. 3.15 Impact of labor market in US dollar appreciation3.15.1Demand-sideThe dollar appreciation decreases the price of foreign goods relative to home goods, decreasing thedemand for home goods. So, the producer will less produce product and direct reduce the labor. In thelabor market, the reduction in labor demand is likely to increase unemployment and moderate nominalwage inflation. The evidence indicates that the deflationary effect of dollar appreciation is more dominanton the nominal wage in manufacturing and transportation industries. More importantly, dollar appreciationdecreases the international and domestic demand for U.S. products.3.15.2 Exchange rateThat sharp appreciation of the dollar is responsible for the decline in tradable sectors like manufacturing,agriculture, and forestry products and the relative growth in non-tradable sectors such as services,construction, transportation, and public utilities. Along this line, examines the effects of exchange rate riskacross major sectors of international trade. The results demonstrate that the exchange rate risk has anegative impact on trade. He also found that the agriculture sector is more sensitive to the exchange raterisk compared to the manufacturing sector. Changes in the exchange rate can significantly influence theprofitability and performance of U.S. manufacturing industries.3.15.3 Supply sideOn the supply-side, changes in the exchange rate, both anticipated and unanticipated, determine the costof importing intermediate goods. As the dollar appreciates, it is cheaper to buy intermediate goods fromabroad. The price of energy is paid in dollars. That is, the change in the exchange rate of the dollar doesnot affect the cost of imported energy to the United States. So, the producers are inclined to increaseimports of intermediate goods, increasing the marginal product of labor. Concurrently, the reduction in pricedecreases the cost of living and, hence, workers’ demand for higher wages.4.0 Impacts on Korea, Thailand, Indonesia and PhilippinesThis part only 4 Asian countries being discussed. Here we have been discussing the various impacts inthese 4 countries which affected seriously in economy crisis. 20
  • 21. 4.1 KoreaThe impact of International Monetary Fund (IMF) has shown a sign of recovery in areas as current accountsurplus, trade surplus, debt restructuring and chaebols’ ( big corporation in Korea) announcement ofrestructuring plan. However, the Korean government, companies, labor had to share bitter realities thatwere imposed upon the IMF crisis as well.High interest rates The chaebols offers interest up to 30 percent on their corporate bonds to attract takers. Threemonths before the crises, the small and medium companies has already suffered more because of therates that have doubled. High interest rate signals a sign pointing a big deterioration in the business climate.Debt burden Through what I have explained earlier, it means that due to the borrowing of fund ‘rescue packages’from IMF, Korea had to face high debt insolvency. Weak currency give Korean chaebols extra burden oninterest payment to foreign investors. Korean debt total estimated of $150 billion was found the biggestamong those of Indonesia ($130 billion), Thailand ($100 billion), Philipines ($60 billion) and Malaysia with$40 billion.Massive layoff The massive layoff grabs the public fears on their future. The absence of government welfaresystem like US and Western European countries was the reason for the public fears. The unemploymentrate increase from 2.5 percent before crisis to 6.5 percent after the economic crisis.Untested presidential Leadership This means that as the Korean’s president thought by electing Kim Dae Jung who is an untestedleader has a pledge to push the chaebol to restructure and pass laws allowing layoffs. However, there wasstill doubt whether economic advisers will be able to push hard on key issues. To that the governmentintervention has been accelerated rather that diminished. Therefore, the corrupt alliance between thechaebol and government has not broken. 21
  • 22. 4.2 ThailandThailand was one of the countries which affected rapidly in the economy crisis. The increasing price of oilwhich it imported and the downturn in the commodity prices had seriously affected their exports oncommodity. Therefore, when the interest rates started to increase dramatically, Thailand like otherdeveloping countries became encumbered with an unsustainable foreign debt burden. So, that was a resultfor Thailand which forced to seek for the support of the International Monetary Fund (IMF) to have astructural adjustment program. Sooner they have to face a number of consequences like a chronic currentaccount deficit and weaknesses in financial system, followed by foreign exchange crisis to the stock marketcrisis and property market crisis which leads to banking crisis. Thus, all this has been a led to the economicand political crisis in Thailand.Chronic current account deficit Thailand deficit was 8 percent of GDP in 1995, 7.9 percent in 1996 & 1997. This is the reasoncaused the country to rely heavily on external borrowing.Excessive external debt Thailand have to face an estimated of $US 99 billion debt, about 55 percent of its GDP. Therefore,the majority of this debt was privately incurred and this large external debt sharply lifted the country’s debtratio.Collapse of the property sector With the loan increasingly becoming more expensive and hard to get under the Bank of Thailandwhich had squeeze on lending and that is where the property sector began to collapse. These haveworsened developer’s cash flow troubles and defaults on interest payment. As a result, many financecompanies and small banks faced liquidity problem.Political instability Chavalit Yongchiyudh had lost his administration in November 1997 as through his ruling theeconomic performed very poorly in economic management. The economic team has lacked unity andcommon goals which latter failed to deal with the mismanagement by the technocrats. Therefore, the 22
  • 23. confidence of foreign and domestic investors slipped away and the economy continued to worsen after theelection until today.4.3 IndonesiaThe IMF approved US 35 billion for reform programs in Indonesia, Korea, Thailand, Philippines andMalaysia. However, Indonesia was augmented by additional US$ 1.3 billion from IMF and US$ 5 billionfrom multilateral and bilateral services. IMF allowed Indonesia to put a limit of only US$ 5 billion percustomer on forward foreign currency trading between banks and non-residents. Consequent to thispackages Indonesia had to suffer the upcoming contagion from the procedure. There were high interest rates entailed by the IMF programs had effect on the private sectorscapability. The financial liberalization affected countries without prudential regulations was a seriousmistake. IMF should have discouraged such liberalization till appropriate regulatory regime was in place.There was also improper safety net development due to rapid trade liberalization. Inflation had involved inthe crisis for fuel, food and financial system.4.4 PhilippinesThe Philippines was a special case as its economic development program has been based on neoliberalprinciples promoted by the IMF and the World Bank. So, it did not begin as a response to the recent crisis.However, due to the chaos which had defeated the other Asian countries like Indonesia, Malaysia, Korea,Thailand and other related countries. Philippine was also pulled into the economic crisis circulation. Therewere several impacts in macroeconomic and social sectors.Effect the asset market There was an immediate impact on the liquidity squeeze in international capital markets.Consequently, the impact had a sharp drop in equity prices and exchange rate volatility. It has alsoinfluence the real sector on production and expenditure sectors. Plus, the stock market volatility has alsoeffect the macroeconomic stability which has its implication for the private investment. 23
  • 24. Affect the financial sector It had put pressure on financial market especially in economics with high foreign participation inlocal equity markets, banking systems that depend heavily on short-term foreign currency trading. Thisundoubtedly, remains the Philippine in vulnerable to further shock that emanate from global financial crisis.Influence the household and communities This is related to the layoffs, experienced in wage reduction and so forth social disabilities. Hence,there happen to be a significant downward movement in income from employers as well as from businessitself which lead to the poverty alleviation.4.5 Malaysia’s situationWhen Thailand currency collapsed in July 1997, the economic crisis spawned spread rapidly to its neighborincluding Malaysia, Indonesia, Philippine and Korea. To some extent, Malaysia was better prepared to facethe crisis instead. In Malaysia, the ringgit came under speculative attack and thence to decline. However,the country had not liberalized its capital account to the same extent as what the other three countries.Therefore, the local companies were allowed to obtain foreign loans only with Central Bank permission,which would be given only if the borrower could show that the loan would be used for those activities whichcan yield revenue in foreign exchange that could used for loan servicing. As a result of the restriction,Malaysia’s debt situation remained manageable. To illustrate, Malaysia had a very less debt than the othercountries because Malaysia borrowed less amount of financial support from IMF and later applied a fixedrate of US currency which is $ Indonesia’s situationThe debt situation in Indonesia is quiet a serious matter. Indonesia has borrowed heavily from 1967 till1998 under the General Suharto power ruling. The total external debt owned by Indonesia $141 billion.However, the financial crisis made it difficult for Indonesia to pay off its debts. In fact, the rapid fall in thevalue of Indonesia currency which also meant the debt to be paid in foreign currency became twice asexpensive. Indonesia is officially classed as middle income country by the World Bank as the country’saverage daily income per person is over $2.36. So, it is not eligible for the Heavily Indebted Poor CountriesInitiative or the Multilateral Debt Relief Initiative or for any other additional assistance from the UK or othercreditors. To narrow the point, Indonesia needs cancellation of its illegitimate and odious debt. The 24
  • 25. campaigners says that it is unfair for the people of Indonesia to keep paying and bearing the burden ofdebts on loans which had never beneficial to most people.4.7 Philippines’ situationThe total debt of Philippine is about $ 61.5 billion. Most of the debts were accrued during the presidency ofFerdinand Macros from 1965 to 1986. He then fled the country in February 1986 during the first PeoplePower when the country had amassed a foreign debt of $ 28 billion. However, the Philippines tax payerswill continue to pay the foreign debts of Macros until 2025 it means 59 years he assumed office and 39years after he was overthrown. The deal was surrounded by allegations of corruption and the plant wasbuilt on an earthquake fault line at the foot of a volcano. Meanwhile, the Philippines’, a third of who live inpoverty paid millions of dollars every day for this power plant until 2007 when the debt was finally paid off.This is because the Macros and all did well financially out of the plant which has never produced anyelectricity. In line, the New Economic Foundation calculates that the Philippines requires 63 percent debtcancelation in order for the government to meet the basic needs of its citizen such as health, education andother infrastructure without taxing those living below an ethical poverty line of $3 a day.4.8 Korea’s situationAs to Korea, through a comparative look at the national debt figures against GDP reveal that the SouthKorea’s debt is at too little of 34 percent. Nevertheless, Korea did not come out of the 2008 downturndespite have survived from the Asian financial crisis hits in 1998 due to various economic reforms. So, as in2008 the South Korea GDP dipped to 2.2 percent and then to 0.8 percent and the 2010 forecast hadprojected at 5 percent. In consideration, it is believed that if the country stays firm with that figure theywould be able to retain their position as the 15th largest economy in the world. The development of Koreandebt dynamics points at a potentially unstable debt path, that the level of the debt ratio was quite lowcompared to Thailand and Malaysia. Hence, in its Budget 2012, the finance ministry of Korea have statethat the yearly growth will be in the range of 1 percent in the first half period due to the debt situation inEurope. The budget strategy of the national government in the initial half of 2012 is expected to cushion thenational economy from the aftereffects of the debt crisis in the Euro zone. 25
  • 26. 4.9 Thailand’s situationThe result was much convincing for Thailand compare to Malaysia over the debt dynamics. Similar toKorea, the Thailand debt increased substantially prior to 1997. The gap between investment and domesticsavings increased six fold. To illustrate, the average amount of debt was mention to be 116,681 Baht whichwas about 6.3 times of income where in general it was found that income inequality has decreased from theyear 2006. Therefore, it is highly recommended to the particular country to take an appropriate action onthe problem of household living cost especially for the poor. Thailand it is reported that there were slightly down in the Bank of Thailand’s monthly financial andeconomic prior to the flood damage. As a result the country has to suffer the effects in terms of it exports,industrial and agricultural production which cause damage and felt to the global economic recession. As forthe balance of trade there was a surplus of US$ 200 million and the foreign currency reserve at the end ofNovember was recorded at US$ 178.3 billion, slightly lower compare to the previous month which wasdown about US$ 3.7 billion than November. According to the Asian Development Bank (ADB), they see afairly vigorous growth in the Philippines as well in other Asian emerging economies. The IMF, recently seesthe ASEAN 5, composed that the Philippines, Indonesia, Malaysia, Thailand are posting an average growthof 5.2 percent this year and predicted to be 5.6 in the 2013 on the back of the prolonged crisis in the Eurozone. In Malaysia, Indonesia, and Thailand and in Korea the income had rose seven fold, climbed from 10percent to 27 percent today. The origins of Asia rapid growth have been fervently argued and it is whattaken on new energy with the onset of the financial crisis. Eventually, there is some observers suggests theaftermath of the crisis that these countries like Korea, Indonesia, Malaysia, Philippines and Thailand and soforth was at rapid development, somehow an illusion that either never really happened of has beencompletely wiped out by the crisis.International Monetary Fund (IMF)IMF (International Monetary Fund) is a policies that given important to foreign countries to control of Asiancountries. According to Martin Khor, these policies had be one of the greatest fears to a country which hadbeen forced to seek IMF assistant. It is because the policy conditions that come with such loan can bringthe end of the nation’s economic sovereignty. These fear are already become reality in Thailand and SouthKorea, where the conditions attached to their IMF loan have led to policy changes that cover the way forforeign institutions to take over the domestic financial sector as well as other parts of their economies. The 26
  • 27. foreign banks and companies are already going though the remains of these economies and begin to pickup local assets and institutions at bargain prices. The IMF policies that had imposed on Thailand and SouthKorea allow higher foreign ownership on their economy, especially in financial sector. The market accessconditions were believed to place in the IMF package at the perseverance of the United States. Besides ofits deal with IMF, Thailand had been asked to allow foreign banks to own more equity in local bankingsector. While Indonesia, IMF allowed to put a limit of only US$5 million per customer on forward foreigncurrency trading between banks and non-resident. IMF committed for tight monetary policy andcomprehensive package of structural reform prepared in corporation with the World Bank. On October 31an impressive program of macroeconomic adjustment and structural reform were formed by IMF whichincluded strong monetary and fiscal policies designed to bring adjustment in the economy and restoreconfidence to financial market, its consist of a major restructuring of financial sector to ensure for futuresoundness, and it involve significant deregulations measure and trade reforms. Besides that, Philippines had embarked on a successful IMF-supported program ofmacroeconomic adjustment and structural reforms in the late 1980s and early 1990s, which seems to haveenabled it to weather the crisis at a relatively lower cost in terms of output loss, unemployment and socialdisplacement. Crisis management after mid-1997 was sound, and the Philippines adapted its policies,including through the floating of the peso, tightening of monetary policy and strengthening of the bankingsystem. It eventually relaxed its fiscal and monetary policies as stabilization took hold in mid-1998. In thePhilippines, recent macroeconomic developments have also been favorable. Recovery is well under waywith real GDP growth of 3.25 percent in 1999, led by a rebound in agricultural production from a severedrought in 1998. Monetary policy is helpful of continued recovery, and interest rates are now below pre-crisis levels, while foreign exchange reserves have risen to the level of short-term debt (on a residualmaturity basis) as the current account surplus increased to almost 9 percent of GNP in 1999. Bank balancesheets are also being strengthened. The budget deficit had been allowed to increase to support recovery,but fiscal policy has shifted toward consolidation in 2000 given the need to reduce the relatively high levelof public debt. The IMF was called in to provide financial support for three countries most seriously affected by thecrisis: Indonesia, Korea, and Thailand. The strategy to address the crisis had three main components whichare finance, macroeconomic policies and structural reform. For example in financing, some US$35 billion of 27
  • 28. IMF financial support was provided for adjustment and reform programs in Indonesia, Korea, and Thailand,with the assistance for Indonesia being augmented further in 1998-99. Some US$85 billion of financing wascommitted from other multilateral and bilateral sources, although not all of this financing actuallymaterialized. In addition, concerted action was taken (at different stages after the start of these programs,in different countries) to stem private capital outflows. While in macroeconomic policies, monetary policywas tightened (at different stages in different countries) to halt the collapse of the countries exchangerates--which went well beyond what might have been warranted by fundamentals--and to prevent currencydepreciation from leading into a spiral of inflation and continuing depreciation. The monetary tightening wasappropriately temporary: once confidence began to recover and market conditions stabilized, interest rateswere lowered. Fiscal policy was essentially to be held firm in the case of Indonesia and Korea, while inThailand a fiscal tightening was planned to reverse an increase of the deficit the year before the crisis.Besides that, in structural reforms the steps were taken to address the weaknesses in the financial andcorporate sectors. Other reforms were intended to alleviate the social consequences of the crisis and setthe stage for a resumption of growth.ConclusionThis paper shows that the fluctuation US dollar affects the economy of Asian, Africa, Australia and MiddleEast country. We also examined the relationship between fluctuations US dollar between these countries.The fluctuation of US dollar had brought lot of impacts to the world economy. It had affected the economy,exchange rate currency, exports and imports, commodities, financial market and so on. The seriouslyaffected countries had to face huge losses. Some countries even faced high debt which was billion ofdollar. There were few countries which had borrowed lot of money from IMF to cover the debt especiallyKorea and Thailand. The financial crisis had brought the very good experience to the economy world. Thecountries which affected have learned the way to solve the economy problems and protect their economysystems. This may let them avoid the same problems in the future. 28
  • 29. LimitationThere is little limitation in the research. Firstly is payment. Refer to the expert research to have a strongjustification over the points we are discussing about. Hence, to hold such a piece of journal which have isrelated to the topic, a payment is needed to purchase the copyrights. Second is lack of prior researchstudies that related to the topic. Somehow, it might lead to the wrong or unrelated corner of the informationwe need. So, in order to capture the vital information it needs time to go through one by one journal. Itneeds patience in order to stare and read all the information carefully to understand and obtain the mainpoints from the paragraph. Third is sources constriction. Even by following the technology update, we arestill subtitled under the sources constriction as they are limited by the size of the collection. For example,searching and reading only few of the online sources does not enough, instead we have to check in toseveral websites which is reserved for its copyright and even then it is not sure we could have theinformation. This is because most of the sources are patterned and it needs its membership to log in as thepayment is still considered. Lastly casual remark, for this kind of current issues related research, it is quitehard to make any casual remarks or conclusion as it is restricted for the real-life connection. 29
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  • 31. Shirai, S. (2009). The Impact of the US Subprime Mortgage Crisis on the World and East Asia: ThroughAnalyses of Cross-Border Capital Movement.. 31