The document discusses the effects of fluctuations in the US dollar on the world economy. It focuses on the impacts to Asia, the Middle East, Australia, and Africa. Key points include: 1) Movements in the US dollar impact world economic growth as the US is a major export destination. An appreciating dollar boosts US imports and economic growth in other countries. 2) A sharply depreciating dollar could weaken world economic growth by reducing US import demand. The world remains dependent on the US as an economic engine. 3) Research will examine dollar fluctuations and effects on exchange rates, economies, imports/exports, commodities, financial markets in Asia, the Middle East, Australia, and Africa

1. Group name: Jelena Jankovic
Group member: Loh Moi Sin, Santhiyah Munisamy, Seela Kumar, Rema Sridaran, Charmilaa
Silvaduray, Goo Wooi Sin
Topic: The fluctuation of US dollar and its effect toward world economy
1.0 Introduction
Movements in the US dollar have important implications for the prospects for world economic growth. This
is because United States is an important destination for exports from other economies. A marked
appreciation of the US dollar, for example, will increase the purchasing power of US consumers, import
demand and so on. Higher import demand in the United States will lead to improved export and also
economic performance in many international economies especially those in Middle East, Asian, and
Australia.
The US dollar has strengthened significantly on a trade weighted basis over the past few years. It’s
related with the appreciation of the currency; import demand in the United States has increased
substantially, leading to a marked widening of the trade imbalance. There has been considerable debate
about the sustainability of the significant increase in the value of the US dollar. If the US dollar were to
depreciate sharply in the short term, there would be adverse effects on world economic growth, and hence
world commodity demand and prices. This is because the world economy is still very much dependent on
the United States as a growth engine. A sharp reduction in US import demand in the near future has the
potential to markedly weaken world economic growth.
Our research divided into four sections which are research motivation and significance, scope of
research, literature review and last is discussion and finding. In scope of research, we mentioned which
countries that we focused on and year that involved in crisis. Our main objective is to study the fluctuation
of US dollar and its effect towards world economy. From research motivation and significance section, we
mentioned that for whom our research report will contribute to. Literature review section is mentioned with
the effects of the crisis toward, Asian, Australia, Africa and Middle East. Last section, discussion and
finding are discussed about the few effects that chose from literature review. Finally we conclude what we
have done in this research.
1.1 Background
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2. The world economy is currently suffering a global financial and economic crisis that has become severe
since the second half of 2008. This global financial situation was triggered by the subprime mortgage crisis
in the United States, which became apparent from mid-2007. East Asia did not escape. The subprime
mortgage crisis in the United States is far more complicated, for several reasons, than any series of crises
in the past. For example, in the Great Depression of 1929-1930s, the Savings and Loan [S&L] crisis in the
United States. In the 1980-1990, the Long Term Capital Management [LTCM] crisis in the United States in
1998, 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 of
the current global crisis, has strengthened against almost all foreign currencies, except the Japanese yen
and the Chinese Yuan. This differs from past experiences when the currencies of the crisis-originating
countries tended to reduce their values against other currencies. This unique situation reflected the
increased demand for the US dollar in the de-leveraging process—mainly through a withdrawal by US
investors from global stock investment. It also reflects the fact that the crisis’s contagion reduced the prices
of almost all financial assets worldwide, so that investors could have regarded some US financial assets
such 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-used
currencies for cross-border banking activities However, when only the currencies used in transactions as
foreign currencies were considered, it is clear that the US dollar was the most dominant foreign currency in
cross-border banking activities. Both borrowing and lending conducted by banks operating in the United
Kingdom were dominated by US dollars. Even though the euro was the next most important currency, its
use was relatively limited.
1.2 Objective
1. 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
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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 in
mortgage activity. They may more understand about this issue through our report and well plan for their
future financial development. Besides, they also can understand and take this crisis as an experience for
future. Take the history as part for the solution and well prepared for future on it.
1.4 Scope of Research
Asia, Australia, Africa, Middle East and US have the close relationship in the economy aspect. US are the
important support for the economy of those countries. There are a lot of impacts toward those continents
after US dollar fluctuation. Our research on US dollar fluctuation mostly focus in exchange rate, economy,
import & export, commodity, financial market,
2.0 Literature Review
In this section, we will discuss some theoretical evidence put forth by economists. That is addressing
respective theories associated with US dollar fluctuation towards world economy.
There are three directions for the effects of an unanticipated appreciation of the dollar on the
economy. The first channel is on the demand-side through the effects of appreciation US dollar in
increasing imports and decreasing exports. The result is a contraction of aggregate demand. The second
channel is through the effect of appreciation US dollar in decreasing the demand for the dollar as agents
expect the exchange rate to return to its anticipated steady-state value. The result is an expansion of
aggregate 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 remain
indeterminate 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 in
commodity prices. Commodities in South Africa had plays an important role in their economies which derive
the majority of their merchandise export. The domestic produced good had become highly concentrated by
Africa 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 been
gives reflects to commodity price.
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4. Rogoff and Maurice (2009) said the oil demand and supply have direct relation which United State
financial crisis. Oil was perceived by all customer and oil producers of US. These effects depend on
currency that had been used in transactions linked to oil activities because the oil which has been
purchased is paid using dollar currency. The dollar depreciation generally tends to decrease the oil in
consumer 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 oil
imports had been forced to preserve large stockpiles of dollar because of the status of the United States
dollar as world’s dominant reserve currency and as he currency in which the oil is priced. Increased in
exchange rate will give a negative impact on the real GDP due to Iraq which give negative impact on
exports 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 exchange
rate in Middle Eastern countries. The first factor is changes in oil demand and supply. This change happen
occurs because of have change in dollar exchange rate. However the changes in oil price also can effect
changes in oil demand and supply. The second factor is reserve causality which happen when have
changes in oil price. The third factor is that affect the oil price which occur of movement in the dollar
effective exchange rate is stock of portfolio model, Kandil & Mirzaie (2000)
An increased in export value and volumes for selected products that export by African country
depend to four factor. The first factor is demand and growth and increased price in global and export
market which is related on U.S dollar rate. The second factor is foreign and domestic investment in new
and expanded production capacity. While the third factor is African government policies which able
promoting Sub-Sahara Africa (SSA) into export market and the four factors which can affect U.S dollar
fluctuation 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 business
and households. However, the slowdown of capital inflows at a later time may lead to the depreciation of
the US exchange rate. According to Jammie and Maurer (2002), depreciation in US dollar would affect the
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5. world economic growth. A sharp decline in the US dollar will affect the Asian domestic demand to be
weaker and latter trigger a slump in consumer and business confidence. The appreciation or depreciation in
US dollar adversely affect the major world economics like Japan, United States, Western Euro, Non-Japan
Asia, 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, Singapore
and Thailand. Through the studies, it is suggested that the ASEAN is on dollar standard although it is not
as 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 the
results shows that the US dollar standard presumed to prevail in ASEAN. The result is difference between
the long run and short run. It is possible for ASEAN to on dollar standard in a short run which evolves into a
pound standard in the long run as competition, trade and capital inflows among the US, UK and even the
euro area causing the bilateral exchange rates to adjust the equilibrium.
The financial crisis which hails in Malaysia has caused numerous impacts to the country’s
economy. It has impact the KLSE (Kuala Lumpur Stock Exchange), impacts on the business confidence
levels, the foreign direct investment, industrial and manufacturing sector, trade and monetary policies and
even the financial sector, Bakar & Ariff (1999). The fluctuation in financial crisis is highly sensitive to
economic 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 upgrading
the industrial and technology base, also to concentrate in the foreign direct investment and also by
continuing to pursue liberalization.
Khor (2005) said the financial crisis of the fluctuation has led to the depreciation in commodity
export prices. Therefore, in Malaysia the ringgit had been under speculative attack and declined
significantly. There were two mechanisms driving the short-selling. The first, speculator sold the ringgit in
the 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 contributed
to the weakening of the ringgit demand as the US dollar increased. However, the currency depreciation had
several negative effects. It has increased the burden of external debt servicing, continues changes in
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6. exchange rate, the prospect to the continuous decline in the ringgits rate which contributed to the sharp fall
in 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 in
trade with the rest of the world. The question that arises is why the fluctuation in the yen/dollar rate has
such persuasive effects on EA smaller economies. It is because of the dollar pegging before and after the
Great East Asian Crisis. The high frequency pegging in dollar became robust. So, as the yen/dollar
fluctuates the asymmetry between Japan does not peg the dollar and other stage for the synchronized East
Asian business cycle. On measuring the output of fluctuation, in large countries like Japan, China, United
States has influenced the output in East Asian economies. The findings states that the business cycle in
China and US have no impact on the output fluctuation on East Asia countries as the business cycle in the
small EA economy is strong. However, Japan output changes have a significant impact on six countries like
Hong Kong, Indonesia, Korea, Malaysia, Taiwan and Thailand. The estimation shows that either US or
Japan, 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 strong
economic 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 financial
situation and economic crisis, Africa’s growths have been affected. It has faced a falling in the demand and
prices of commodities, a slump declining in capital inflows. Thus, the global crisis and economic crisis like
dollar fluctuation has an impact on Africa’s banking system, trades, capital inflow in Foreign Direct
Investment and short term private inflow, exchange rates, commodity like textile, mining sectors and so
forth, rising of sovereign debt and collapse in financial market.
Jammie and Maurer (2002) stated that the US dollar fluctuation that the financial crisis results in
effecting on global imbalances which are debated among the economist as well as the policymakers. The
regional financial imperfections and unbalanced growth pattern in emerging market economies and oil
exporters contribute near to the ground global interest rate, discourage monetary policy, and the rickety
political situation in Asian countries. It is confirm that the linkage between Asian economies and the
developed countries remains strong and the financial crisis affects the Asian economies through both trade
and financial channels. In fact, these economies fluctuate drastically in monetary, exchange rate and fiscal
system.
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7. It stems from a slowdown in the domestic demand in the US about 3.5 percent close to the
cumulative weakening in its GDP. The slow movement arises in both domestic expenditure and private
investment with the fall over to other economies. In this case, Korea suffers the most and then followed by
China, Click (2009). The main factor why China foresees a larger loss than other economies is because of
its implementation of the floating exchange rate regime against the US dollar. They have even mentioned
that the world economies growth has slid significantly not only due to the US slowdown but also because of
individual domestic factors as well as the worsening global economic conditions. To illustrate, a slowdown
in G3 economies which is the US, Japan and the euro area of 1 percent may more than double the losses
suffered by emerging Asia caused by a slowdown in the US alone of the same size, depending on the
policy responses and exchange rate regimes of regional economies.
Eventually, when it happens to face the US dollar fluctuation, it will definitely affect the equilibrium
level of output. It means that the aggregate demand, the amount of goods and services demanded by all
sectors in economy at each level price. So, the US dollar fluctuation will effect and alter the movement
between the price level and demand in each sector. There are several types of spending which are
probably 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 findings
3.1 Impacts on economy
3.1.1 Economy of Ontario
The fluctuation of US dollar has its impact on Ontario, Canada economy as well. The recent slump in the
manufacturing 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 their
business, employees lost their job, consumer has restricted their spending. Therefore, they were an
increase effects on local and province-wide economies.
3.1.2 Economy of India
In terms of economy, the Indian Rupee appreciation against the dollar has impacted heavily on several
factors 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.
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8. So, when the dollar appreciates highly against the rupee, the exporters stood to gain the $1 which is equals
to Rs.48 but lately due to the appreciation in Rupee the value slopes down to Rs.39.35 equals $1, which
the range drag away the profit margins of exporters and balance of payment services providers to be
similar. Next, toward the imports where the scenario is that the importers do need to pay only Rs 39.35
instead of Rs48. So, we conclude this gain will likely to create savings in cost, which will be passed to
consumers to control the inflation. In addition, the dollar fluctuations do also effect the foreign investment
into India. This is because the foreign investment in India contributes well to dollar depreciation against
dollar.
3.2 Impacts on financial market
3.2.1 Financial market of Asia
Next, the financial market contagions, due to the US dollar fluctuation, the Asian countries had also
confronted by badly hurt of financial sectors apart from the negative effects through trade channels. The
same author comes to explain that the balance sheets of banks are insolvent, therefore the capital outflows
have been out of control and the stock markets have been strained. The financial contagion has been more
complicated and challenging than the international trade where the transmission mechanisms through trade
are much more straightforward. Besides, economies like Japan and Hong Kong in this area have enjoyed
almost perfect capital mobility. However, capital control is still binding on the mainland. It is necessary to
break down the financial channels of propagation in order to fully capture the role they may play in
transmitting the infections as the relative importance of various financial channels can differ across
economies.
3.2.2 Financial markets of Africa
As mentioned earlier, even though African banking system does not indirectly exposed to any subprime
crisis, it has to be note that there were still a strong indication of increased asset price and risk premium
volatility on the financial market in early 2008. Since, Africa is fairly liquid financial market, it has not only
suffered 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 Egyptian
and Nigerian investors have faced an average loss of more than half the wealth invested and it is higher
than the losses bear by the American, French and Japanese markets.
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9. 3.3 Impacts on banking sector
3.3.1 Asia banking sector
Finally, it comes to the banking sector corruption, as have mentioned in the earlier part the US dollar
fluctuation 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 conserve
capital to decline in international economic outlook and tighten the loan principles. US banks became
unwilling to provide US dollar to their nobles in EMEAP economies, banks in this area have increased their
borrowings in currencies other than the US dollar and actively converted them into the US dollar through
foreign exchange swaps. So, this also contributed to the monetary tightening conditions, policy interest
rates have been concentrated and liquidity conditions have decline, additional weighing on the already
diminishing real economic sectors. Moreover, the credit spread is similar to the external finance premium
relative to a risk-free rate in the framework of a monetary accelerator.
3.3.2 Africa banking sector
Due to the low level of financial integration, African economies were relatively isolated from the direct
impact of the financial crisis. Africa came to find that they are being shielded from the impact of the 2007
sub-prime and the 2008 banking crisis, thereby avoiding the effects of a financial crisis that affected the
very 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 and
banking crises. So, there was no country in Africa announced for the bank rescue and there were no
difficulties 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 on
external financing. The contagion effect was worse only by the entry of foreign bank presence. The foreign
banking 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 African
subsidiaries. The contagion effect of financial meltdown is much weaker compared to the effect on parent
banks. Besides, the sterilization of such reserves and their conversion into foreign assets helped the
countries avoid strong exchange rate appreciation. Nevertheless, sovereign funds are expected to drop, in
line with other financial wealth instruments on the global market. Plus, it is certain that the fall in oil prices
will contribute to a dramatic reduction in the investment capacity and the size of funds.
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10. 3.4 Credit crisis in Asia
Followed by the flight to quality across borders is the credit crisis spread from the US to other regions. It
has been distressed by the International Monetary Fund that the net capital inflow into emerging Asia will
drop sharply in 2009. Therefore, it has been found that the country risk premium measured as the
sovereign spreads relative to the US treasury bonds. Related to that issue Korea and the EMEAP6 have
faced a large increase in country risk premium while Japan has only seen a modest rise. The flight to
capital may affect an economy by two ways. The first, it would exacerbate the worsening domestic liquidity
conditions and dampen economic growth. Second, by adding depreciation pressure to regional currencies
against the US dollar and may improve trade balance in these economies. Plus, a depreciation of domestic
currency would exert beneficial valuation effects on foreign assets denominated in the US dollar for a
creditor economy and negative valuation effects for a debtor economy.
3.5 Impacts on stock market
3.5.1 Asia stock market
Finally, it comes to the stock market infection and this happens as the third financial channel through which
the US credit crisis spreads to other economies. Eventually, the significant drop in the US stock prices
affects the stock market in other regions. Global institutional investors and hedge funds tried to reduce
exposure to emerging markets where the net equity outflows have hit many regional markets. Firms reduce
their investment and dampen consumption which leads to slower economic growth. As the equity market
play a more important role in firms fund raising in the Asia economics, it is necessary to consider the
relative importance of stock markets in firms financing in each economy.
3.5.2 Africa stock market
A 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 926
points or 2.82 %, reaching a high of 34386.97 points in February of 2012 and a low of 29257.97 point in
august of 2011. Historically from 1995 until 2012 the JALSH market value averaged 13931.68 points
reaching an historical high of 34386.97 points in February of 2012 and a record low of 4308.02 points in
September of 1998.
3.6 Impacts on exchange rate
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11. 3.6.1 Exchange rate in Asia
The fluctuation in dollar produces a great impact to the world economy. It increases the uncertainty for the
forecast of investors and latter effect their decision making process. Therefore, the cost of international
trade transaction will rise according to the exchange rate fluctuation. In such cases, the foreign debtors and
dollar based asset holders will tend to face more severe crash. Despite, the fluctuation in dollar exchange
rate would benefit the international speculative capital of an opportunity, which would make certain the
disturbance at the financial market in most countries.
3.6.2 Exchange rate in Canada and Ontario
Since most of this country’s trade is mostly with the US, the strength of their dollar against the US dollar is
important. Here, the exchange rate is referred to the value of Canadian dollar against the currency of other
countries. 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 international
exchange markets. Some other factors that might influence the supply and demand of exchange rate
include 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 Africa
The volatility of U.S. dollar as a reserve currency also had a strong effect on African currencies. The dollar
rose sharply against all currencies, amplifying the depreciations that were triggered by other external
factors. The dollar gained 11 percent between June 2008 and March 2009, which accounts for slightly more
than half the depreciation in Nigeria, Uganda, and Kenya which about 40 percent of the depreciation of the
Zambian kwacha. Subsequently, the U.S. dollar fell, shedding 6 percent by September from its March peak
with respect to the euro. This matches almost all the appreciation in Kenya and Uganda shillings and about
30 percent of gains in the Zambian kwacha.
The impact of the financial crisis manifested through the currency fluctuation, especially against US
dollar or the Euro. So, the depreciation of some currencies is attributable to the impact of the financial crisis
on commodity prices and the decline in the foreign exchange reserves. To illustrate the situation, the drop
in copper price of 65.8 percent leads to significant fall in Zambia’s foreign reserves. The Zambian exchange
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12. rate to the US dollar decreases in value sharply in 2008 by 50 percent, although the exchange rate
improved a little at the end of the year.
3.6.4 Exchange Rate Middle East
As oil trade from Middle East Countries such as Iraq, Iran, Saudi Arabia, United Arab Emirates, Libya, and
Kuwait is dominated in US dollars, movement in the dollar effective exchange rate affect the price of oil as
perceived by all countries outside the United States. Hence, change in the dollar exchange rate can cause
changes in oil demand and supply, eventually changes in the oil price itself. Secondly, the reserve causality
can also be found, as changes in oil prices may well influence the effective exchange rate of the dollar. For
example, the exchange rate will value if a country accumulates foreign assets, and this movement occur
without looming its current account balance. It is because the capital income takes over the lost in trade
receipts induced by deteriorated competitiveness. Third, stock of portfolio model also will influenced by the
US dollar fluctuation. They were designed to take account trade and financial interaction between United
States, and Middle East countries.
3.7 Impacts on value trade of Africa
The 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 decreased
in 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 2008
through early 2009, as oil and mineral fuel account for about 80% of all U.S imports from Africa, and 92% of
all U.S. import. Petroleum imports did not decrease in volume as dramatically as they did in value, however
the decrease in U.S. and global consumption are likely to continue to have a negative effect on most export
from the region.
3.8 Impacts on commodity
3.8.1 Commodity of Africa
Commodities had play an important role in the economies of most the 24 countries in Western and Central
Africa (WCA), which derive the majority of their merchandise export revenues from one single commodity
or several commodities. Most WCA economies developed positively between 1999 and 2005, although
differences between net oil-exporting and importing countries were clear. Net oil exporters recorded the
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13. highest growth rates, mainly supported by rising investment and exports on the back of record oil prices
and expanding oil in some countries. Rising oil prices make burden on WCA economies, which often
counteracting 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 in
industrialized and emerging countries like India and China has been an important factor of the increase of
prices and demand for commodities. The financial crisis adversely had a negative impact on the world
growth prospects and seriously dampened the expectation on commodity futures markets, including falling
prices and demand for most commodities. For example, the price of crude oil dropped by 65 percent from
USD 125.73 per barrel to USD 43.48 in January 2009. The impact of the crisis on exports commodity prices
and resources inflows threatens to reserve the gains from the recent economic performance of African
economies. The consequence are such as declining reserves, non-profitability of some oil fields that have
high extraction costs, reduction in government funding capacity and cancellation of postponement of a
number of investment in extractive industries which is highly dependent on foreign direct investment.
3.8.2 Commodity of Australia
According 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 an
increase in these countries’ purchasing power. Let’s assume other things are unchanged. The increases in
the purchasing power would provide support for commodity prices on world markets.
Agricultural commodities
Exports of food products have been growing rapidly in recent years as consumer incomes have increased
in importing countries. Given the relative significance of the effects, the analysis is focused on the
implications for international agricultural markets.
Grains
Wheat’s world indicator price was getting higher. This result that world demand for wheat is
relatively less sensitive to changes in incomes. Consequently, the increases in the purchasing power of
wheat importing countries would more than offset the adverse effects of lower income growth. It also
reflected lower income growth and a sharply weaker US dollar. These increases in wheat imports, together
with a reduction in wheat exports, would lead to an increase in wheat prices on international markets. The
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14. United States is the world’s largest exporter of coarse grains which was accounting for more than 40 per
cent of world sales.
Livestock products
For livestock products, there would be downward pressure on world prices because of the
relatively higher sensitivity of demand for these products to changes in income growth. Beef imports for
Asia as a whole have declined. Over the past year, beef consumption in Japan has been adversely affected
by the confirmation of BSE (bovine spongiform encephalopathy or ‘mad cow’ disease). After initially falling
by around 70 per cent following the first confirmed BSE case in September 2001, beef consumption in
Japan remains weak, with a year on year declined of 23 per cent in June 2002. Given current weak
consumer confidence, a significant weakening in Japan’s income growth in the near future could result in
more significant declines in both beef consumption and imports. A sharply lower import demand from Japan
would place significant downward pressure on prices in Pacific markets. Around half of the Australian wool
exports to China were processed and then exported as textiles and apparel to other countries. Australia
also exports a significant proportion of wool to Western Europe, Korea, Taipei and Japan. While demand
for apparel and wool could increase marginally in Western Europe, lower income growth in the United
States, Japan and other Asian countries would adversely affect the demand for apparel, leading to reduced
demand for Australian wool.
Wool prices were denominated in Australian dollars, the direction of movements in the Australian
exchange rate. Against the major importing countries, it also has an impact on international demand for
Australian wool. A depreciation of the Australian dollar against the euro, the Japanese yen, and other Asian
currencies would help to partly offset the adverse effect on wool consumption of lower income growth in
these regions. But a sharply lower value of the US dollar would weaken apparel, and hence wool demand
even more in the United States. Against the US dollar, the prices received by Australian exporters declined
for 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
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15. activity, especially to changes in industrial production. Lower world income growth would place significant
downward pressures on demand and prices on world markets. The downward pressures of lower income
growth on world mineral resources prices would more than offset the support provided by an increase in the
purchasing power of importing countries. That was as a result of a sharply lower US dollar. For Australian
producers of mineral resources, the adverse effects of lower world prices seriously affected by a possible
appreciation 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 an
investment asset in addition to the demand associated with fabrication. When the US dollar depreciates
sharply, investors could switch funds away from US dollar denominated assets and toward gold. This could
place upward pressure on the price of gold. The United States is the destination for Australia’s exports of
mineral resources. In 2001-02, Australia’s main minerals and energy exports to that country included oil
and gas, aluminum, iron and steel and refined zinc. The United States is the destination for Australia’s
exports of crude oil, aluminum and iron and steel and exports of refined zinc. Although the United States is
not a major importer of Australian minerals and energy commodities, lower import demand for
manufactured products in the US market would adversely affect the demand for mineral resources in its
major trading partners.
3.9 Impact on commodity export and import of Africa
3.9.1 Commodity export
South African exports were worth 56.3 billion ZAR February of 2012. South Africa has rich mineral
resources. It is world’s largest producer and exporter of gold and platinum and also exports a significant
amount of coal. Another major export is diamonds. South African’s major exports partners include United
Kingdom, United States, Germany, Italy and Japan.
Export goods or services are provided to foreign consumers by domestic producers. It is a good
that is sent to another country sale. Export of commercial quantities of goods normally requires involvement
of the customers authorities in the both the country of export and the country of import. The advert of small
trades over the interest such as through e-Bay have largely by approved the involvement of customers in
many countries due the low individual of these trades. These unimportant exports are still subject to legal
restrictions applied by the country of exports.
15

16. 3.9.2 Commodity import
South Africa imports were worth 63.7 billion ZAR in February of 2012. South Africa imports mainly
machinery, foodstuffs, equipment’s, chemicals petroleum products and scientific instruments. An import is
any good or services brought into one country in legitimate fashion, typically for use in trade. Import goods
or services are provided to domestic consumers by foreign producers. An import in the receiving country is
an 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 and
the country of export and often the subject to import quotes tariffs and trade agreements.
16

17. 3.10 Impacts on Middle East
3.10.1 Oil sales
Middle East countries are well known as large oil producers. Most oil sales especially in Middle East are
dominated by United States dollar (USD). This fact had been supported by proponent of the petrodollar
warfare hypothesis; because according to the hypothesis most countries which are depend on oil imports
had been forced to preserve a large stockpile of dollars in order to continue their imports. These countries
need to preserve large stockpiles of dollar because of the status of the United States dollar as the world’s
dominant 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 affects
the price of oil which is produced by Middle East countries. The oil was perceived by all customers and oil
producers outside of US. These effects depend on currency used in different transactions linked to oil
activities. Moreover, the US dollar fluctuation also effect on demand. The oil which has been purchased are
paid using dollar.
However, demand depend on the domestic price for consumer countries which usually change
according to dollar fluctuation. Therefore, the dollar depreciation can reduce the oil price in domestic
currency for countries with a floating currency. The dollar depreciation generally tends to decrease the oil
price in consumer countries. Based on this situation, it can lead to an increase in their real income and
increase in their oil demand. Therefore, the dollar depreciation prior has a positive impact on oil demand
and should contribute to raise the price.
On the other hand, the US dollar fluctuation also can effect on supply of oil. Normally, the oil
company use domestic currency of procedure countries to pay their employees, taxes, and other cause
which the currency are often linked to the dollar because of the fixed exchange rate regimes adapted by
most producer countries. As a consequence, dollar changes perhaps affect the price as perceived by the
producer than the one perceived by demanded.
Besides that, dollar depreciation can also cause inflation and reduce the income in oil producer
country 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 income
and therefore available for drilling, everything else equal.
Overall, the dollar depreciation may result in a deduction in oil supply. The dollar effective
depreciation cause an increase in oil demand and the deduction in supply, mainly on the long run which
tends to boost oil price. According to Ariff & Abubakar (1999), the increase in oil price stems from to
simultaneous 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 it
overlooks the multilateral natural of exchange rate, Kandil & Mirzaie (2002).
3.11 Impacts on bonds
3.11.1 Middle East bond
The economic conditions in the United States create a consistent demand for USDs and upward pressure
on the USD’s value. This situation allows the US government gain revenues through issuing bonds at lower
interest rates. As a result the U.S. government able run higher budget deficits at more sustainable level
compare to other countries. The stronger USD will able make the imported goods into United States are
relatively cheap, Bahami-Oskooee et al., (2010)
3.11.2 Government bond of Africa
A 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 which
means 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 yield
for 10 year notes averaged 10.83 % reaching an historical high of 20.69 % in august of 1998 and a record
low of 7.14% in February of 2006. Generally, a government bond is issued by a national government and is
denominated in the country’s own currency. Bond issued by national government in foreign currencies is
normally referred to as sovereign bonds. The yield required by investor’s to loan funds to governments
reflects inflation expectations and the likelihood that the debt will be repaid.
18

19. 3.12 Impact on Australian dollar
An 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 dollar
when US dollar in sharp depreciation. While a sharp decline in the value of the US dollar would lead to an
appreciation of the Australian exchange rate, weaker world economic growth, and hence lower world
commodity demand, could place considerable downward pressure on the Australian dollar. Weighing these
opposing effects, a possible outcome is that the Australian dollar would appreciate against the US dollar.
3.13 Impacts on importers and exporters
As usual the fluctuation has a direct effect on Ontario’s business as well mainly to the importers and
exporters. For example, let’s assume company exports sports accessories to the United States. It will cost
more for an American to buy the accessories if the Canadian dollar rises. This will definitely result in
smaller amount of sales for the Ontario’s company. Therefore, if the company keeps its prices constant to
maintain the market share, it makes less profit on each sport accessories that are being sell. Hence, if the
dollar falls, the situation is vice versa. The sport accessories are a better deal for better selling and there
will be an increase in profit margin.
3.14 Impact on consumer in Ontario
In this term, the rising dollar benefits not only the company for their good business but also the customer as
the saving can be passed on. The Canadian exports now contain about 40 percent imported content. As a
result, it can be said that a higher dollar lowers the cost of the imported components which offset the effect
on the business of the export price. The Ontarians keep a careful track of the fluctuating dollar because a
stronger Canadian dollar means greater purchasing power. In fact, a falling dollar can impact the consumer
very much because the purchasing power is reduced when the Ontarians are obliged to pay more in
Canadian dollars for imported goods. As the prices mounts the Bank of Canada may require increasing the
interest rates to control inflation.
19

20. 3.15 Impact of labor market in US dollar appreciation
3.15.1Demand-side
The dollar appreciation decreases the price of foreign goods relative to home goods, decreasing the
demand for home goods. So, the producer will less produce product and direct reduce the labor. In the
labor market, the reduction in labor demand is likely to increase unemployment and moderate nominal
wage inflation. The evidence indicates that the deflationary effect of dollar appreciation is more dominant
on the nominal wage in manufacturing and transportation industries. More importantly, dollar appreciation
decreases the international and domestic demand for U.S. products.
3.15.2 Exchange rate
That 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 risk
across major sectors of international trade. The results demonstrate that the exchange rate risk has a
negative impact on trade. He also found that the agriculture sector is more sensitive to the exchange rate
risk compared to the manufacturing sector. Changes in the exchange rate can significantly influence the
profitability and performance of U.S. manufacturing industries.
3.15.3 Supply side
On the supply-side, changes in the exchange rate, both anticipated and unanticipated, determine the cost
of importing intermediate goods. As the dollar appreciates, it is cheaper to buy intermediate goods from
abroad. The price of energy is paid in dollars. That is, the change in the exchange rate of the dollar does
not affect the cost of imported energy to the United States. So, the producers are inclined to increase
imports of intermediate goods, increasing the marginal product of labor. Concurrently, the reduction in price
decreases the cost of living and, hence, workers’ demand for higher wages.
4.0 Impacts on Korea, Thailand, Indonesia and Philippines
This part only 4 Asian countries being discussed. Here we have been discussing the various impacts in
these 4 countries which affected seriously in economy crisis.
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21. 4.1 Korea
The impact of International Monetary Fund (IMF) has shown a sign of recovery in areas as current account
surplus, trade surplus, debt restructuring and chaebols’ ( big corporation in Korea) announcement of
restructuring plan. However, the Korean government, companies, labor had to share bitter realities that
were 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. Three
months before the crises, the small and medium companies has already suffered more because of the
rates 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 on
interest payment to foreign investors. Korean debt total estimated of $150 billion was found the biggest
among 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 welfare
system like US and Western European countries was the reason for the public fears. The unemployment
rate 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 untested
leader has a pledge to push the chaebol to restructure and pass laws allowing layoffs. However, there was
still doubt whether economic advisers will be able to push hard on key issues. To that the government
intervention has been accelerated rather that diminished. Therefore, the corrupt alliance between the
chaebol and government has not broken.
21

22. 4.2 Thailand
Thailand was one of the countries which affected rapidly in the economy crisis. The increasing price of oil
which it imported and the downturn in the commodity prices had seriously affected their exports on
commodity. Therefore, when the interest rates started to increase dramatically, Thailand like other
developing countries became encumbered with an unsustainable foreign debt burden. So, that was a result
for Thailand which forced to seek for the support of the International Monetary Fund (IMF) to have a
structural adjustment program. Sooner they have to face a number of consequences like a chronic current
account deficit and weaknesses in financial system, followed by foreign exchange crisis to the stock market
crisis and property market crisis which leads to banking crisis. Thus, all this has been a led to the economic
and 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 reason
caused 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 debt
ratio.
Collapse of the property sector
With the loan increasingly becoming more expensive and hard to get under the Bank of Thailand
which had squeeze on lending and that is where the property sector began to collapse. These have
worsened developer’s cash flow troubles and defaults on interest payment. As a result, many finance
companies and small banks faced liquidity problem.
Political instability
Chavalit Yongchiyudh had lost his administration in November 1997 as through his ruling the
economic performed very poorly in economic management. The economic team has lacked unity and
common 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 the
election until today.
4.3 Indonesia
The IMF approved US 35 billion for reform programs in Indonesia, Korea, Thailand, Philippines and
Malaysia. However, Indonesia was augmented by additional US$ 1.3 billion from IMF and US$ 5 billion
from multilateral and bilateral services. IMF allowed Indonesia to put a limit of only US$ 5 billion per
customer on forward foreign currency trading between banks and non-residents. Consequent to this
packages 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 sectors
capability. The financial liberalization affected countries without prudential regulations was a serious
mistake. 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 in
the crisis for fuel, food and financial system.
4.4 Philippines
The Philippines was a special case as its economic development program has been based on neoliberal
principles 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. There
were 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 also
influence the real sector on production and expenditure sectors. Plus, the stock market volatility has also
effect the macroeconomic stability which has its implication for the private investment.
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24. Affect the financial sector
It had put pressure on financial market especially in economics with high foreign participation in
local equity markets, banking systems that depend heavily on short-term foreign currency trading. This
undoubtedly, 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 business
itself which lead to the poverty alleviation.
4.5 Malaysia’s situation
When Thailand currency collapsed in July 1997, the economic crisis spawned spread rapidly to its neighbor
including Malaysia, Indonesia, Philippine and Korea. To some extent, Malaysia was better prepared to face
the 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 which
can 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 other
countries because Malaysia borrowed less amount of financial support from IMF and later applied a fixed
rate of US currency which is $ 3.8.
4.6 Indonesia’s situation
The debt situation in Indonesia is quiet a serious matter. Indonesia has borrowed heavily from 1967 till
1998 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 the
value of Indonesia currency which also meant the debt to be paid in foreign currency became twice as
expensive. Indonesia is officially classed as middle income country by the World Bank as the country’s
average daily income per person is over $2.36. So, it is not eligible for the Heavily Indebted Poor Countries
Initiative or the Multilateral Debt Relief Initiative or for any other additional assistance from the UK or other
creditors. 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 of
debts on loans which had never beneficial to most people.
4.7 Philippines’ situation
The total debt of Philippine is about $ 61.5 billion. Most of the debts were accrued during the presidency of
Ferdinand Macros from 1965 to 1986. He then fled the country in February 1986 during the first People
Power when the country had amassed a foreign debt of $ 28 billion. However, the Philippines tax payers
will continue to pay the foreign debts of Macros until 2025 it means 59 years he assumed office and 39
years after he was overthrown. The deal was surrounded by allegations of corruption and the plant was
built on an earthquake fault line at the foot of a volcano. Meanwhile, the Philippines’, a third of who live in
poverty 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 any
electricity. In line, the New Economic Foundation calculates that the Philippines requires 63 percent debt
cancelation in order for the government to meet the basic needs of its citizen such as health, education and
other infrastructure without taxing those living below an ethical poverty line of $3 a day.
4.8 Korea’s situation
As to Korea, through a comparative look at the national debt figures against GDP reveal that the South
Korea’s debt is at too little of 34 percent. Nevertheless, Korea did not come out of the 2008 downturn
despite have survived from the Asian financial crisis hits in 1998 due to various economic reforms. So, as in
2008 the South Korea GDP dipped to 2.2 percent and then to 0.8 percent and the 2010 forecast had
projected at 5 percent. In consideration, it is believed that if the country stays firm with that figure they
would be able to retain their position as the 15th largest economy in the world. The development of Korean
debt dynamics points at a potentially unstable debt path, that the level of the debt ratio was quite low
compared to Thailand and Malaysia. Hence, in its Budget 2012, the finance ministry of Korea have state
that the yearly growth will be in the range of 1 percent in the first half period due to the debt situation in
Europe. The budget strategy of the national government in the initial half of 2012 is expected to cushion the
national economy from the aftereffects of the debt crisis in the Euro zone.
25

26. 4.9 Thailand’s situation
The result was much convincing for Thailand compare to Malaysia over the debt dynamics. Similar to
Korea, the Thailand debt increased substantially prior to 1997. The gap between investment and domestic
savings increased six fold. To illustrate, the average amount of debt was mention to be 116,681 Baht which
was about 6.3 times of income where in general it was found that income inequality has decreased from the
year 2006. Therefore, it is highly recommended to the particular country to take an appropriate action on
the 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 and
economic 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 for
the balance of trade there was a surplus of US$ 200 million and the foreign currency reserve at the end of
November was recorded at US$ 178.3 billion, slightly lower compare to the previous month which was
down about US$ 3.7 billion than November. According to the Asian Development Bank (ADB), they see a
fairly vigorous growth in the Philippines as well in other Asian emerging economies. The IMF, recently sees
the ASEAN 5, composed that the Philippines, Indonesia, Malaysia, Thailand are posting an average growth
of 5.2 percent this year and predicted to be 5.6 in the 2013 on the back of the prolonged crisis in the Euro
zone. In Malaysia, Indonesia, and Thailand and in Korea the income had rose seven fold, climbed from 10
percent to 27 percent today. The origins of Asia rapid growth have been fervently argued and it is what
taken on new energy with the onset of the financial crisis. Eventually, there is some observers suggests the
aftermath of the crisis that these countries like Korea, Indonesia, Malaysia, Philippines and Thailand and so
forth was at rapid development, somehow an illusion that either never really happened of has been
completely 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 Asian
countries. According to Martin Khor, these policies had be one of the greatest fears to a country which had
been forced to seek IMF assistant. It is because the policy conditions that come with such loan can bring
the end of the nation’s economic sovereignty. These fear are already become reality in Thailand and South
Korea, where the conditions attached to their IMF loan have led to policy changes that cover the way for
foreign 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 pick
up local assets and institutions at bargain prices. The IMF policies that had imposed on Thailand and South
Korea allow higher foreign ownership on their economy, especially in financial sector. The market access
conditions were believed to place in the IMF package at the perseverance of the United States. Besides of
its deal with IMF, Thailand had been asked to allow foreign banks to own more equity in local banking
sector.
While Indonesia, IMF allowed to put a limit of only US$5 million per customer on forward foreign
currency trading between banks and non-resident. IMF committed for tight monetary policy and
comprehensive package of structural reform prepared in corporation with the World Bank. On October 31
an impressive program of macroeconomic adjustment and structural reform were formed by IMF which
included strong monetary and fiscal policies designed to bring adjustment in the economy and restore
confidence to financial market, its consist of a major restructuring of financial sector to ensure for future
soundness, and it involve significant deregulations measure and trade reforms.
Besides that, Philippines had embarked on a successful IMF-supported program of
macroeconomic adjustment and structural reforms in the late 1980's and early 1990's, which seems to have
enabled it to weather the crisis at a relatively lower cost in terms of output loss, unemployment and social
displacement. 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 banking
system. It eventually relaxed its fiscal and monetary policies as stabilization took hold in mid-1998. In the
Philippines, recent macroeconomic developments have also been favorable. Recovery is well under way
with real GDP growth of 3.25 percent in 1999, led by a rebound in agricultural production from a severe
drought 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 residual
maturity basis) as the current account surplus increased to almost 9 percent of GNP in 1999. Bank balance
sheets 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 level
of public debt.
The IMF was called in to provide financial support for three countries most seriously affected by the
crisis: Indonesia, Korea, and Thailand. The strategy to address the crisis had three main components which
are 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 was
committed from other multilateral and bilateral sources, although not all of this financing actually
materialized. 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 policy
was tightened (at different stages in different countries) to halt the collapse of the countries' exchange
rates--which went well beyond what might have been warranted by fundamentals--and to prevent currency
depreciation from leading into a spiral of inflation and continuing depreciation. The monetary tightening was
appropriately temporary: once confidence began to recover and market conditions stabilized, interest rates
were lowered. Fiscal policy was essentially to be held firm in the case of Indonesia and Korea, while in
Thailand 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 and
corporate sectors. Other reforms were intended to alleviate the social consequences of the crisis and set
the stage for a resumption of growth.
Conclusion
This paper shows that the fluctuation US dollar affects the economy of Asian, Africa, Australia and Middle
East 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 seriously
affected countries had to face huge losses. Some countries even faced high debt which was billion of
dollar. There were few countries which had borrowed lot of money from IMF to cover the debt especially
Korea and Thailand. The financial crisis had brought the very good experience to the economy world. The
countries which affected have learned the way to solve the economy problems and protect their economy
systems. This may let them avoid the same problems in the future.
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29. Limitation
There is little limitation in the research. Firstly is payment. Refer to the expert research to have a strong
justification over the points we are discussing about. Hence, to hold such a piece of journal which have is
related to the topic, a payment is needed to purchase the copyrights. Second is lack of prior research
studies that related to the topic. Somehow, it might lead to the wrong or unrelated corner of the information
we need. So, in order to capture the vital information it needs time to go through one by one journal. It
needs patience in order to stare and read all the information carefully to understand and obtain the main
points from the paragraph. Third is sources constriction. Even by following the technology update, we are
still 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 to
several websites which is reserved for its copyright and even then it is not sure we could have the
information. This is because most of the sources are patterned and it needs its membership to log in as the
payment is still considered. Lastly casual remark, for this kind of current issues related research, it is quite
hard to make any casual remarks or conclusion as it is restricted for the real-life connection.
29

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