Anu Tandukar

After years of stifling expansion, China is finally slowing down and the investors are now absconding. India and Indonesia are suffering a great deal as a result of which, their currencies are inflating and so are their account deficits. Also in the trap is Malaysia, where its 2013 economic growth forecast was lowered to 4.5-5 percent from 6 percent by the central bank. In Thailand, the economy sank unexpectedly in the second quarter.

In the Asian markets, there is a mixed speculation about when the U.S. Federal Reserve will start scaling back the monetary stimulus that has kept interest rates so low and has led investors to be lured back to advanced economies such as the U.S., where growth is recovering, while Asia’s prospects look less attractive. This has left the currencies and stock markets of emerging economies very unstable. Consequently, Asian economies are now going downhill, and the subsiding investment flow has ignited fear the region will experience another financial crisis as suffered during the late 90’s.

In the late 1990s, a sudden withdrawal of foreign investment from Thailand triggered a banking and currency crisis. This significantly affected many other neighboring countries. Even Russia’s and Brazil’s markets suffered a great deal. This time, many analysts say the disorder is unlikely to turn into a major crisis because Asian countries may be better equipped to deal with such shifts in investor sentiment. In 1997, Thailand spent billions of dollars in a failed attempt to upraise the baht. Today, many developing Asian economies no longer keep their currencies at fixed rates. Furthermore, Asian countries have accumulated big foreign currency reserves, which central banks can tap in emergencies.

Since the start of the year, India’s stock market has dropped 10 percent, and the rupee has lost a sixth of its value against the dollar. It is one of the biggest troubles the Indian economy is facing today. In order to combat the outflow of money, India’s government has introduced new duties on imported televisions, raised gold taxes, and hiked deposit rates. Analysts say the measures are an edgy response from the government’s side and that the government lacks a clear economic plan. In addition, India’s central bank will provide dollars directly to state oil companies in its latest attempt to shore up a currency that has dropped to a record low. The Reserve Bank of India (RBI) announced late on Wednesday a special window “with immediate effect” to sell dollars through a designated bank to Indian Oil Corp Ltd (IOC.NS), Hindustan Petroleum Corp (HPCL.NS), and Bharat Petroleum Corp “until further notice.” The RBI last opened such a window during the 2008 global financial crisis.

The steps are the latest in a series of extraordinary measures undertaken by the RBI to overcome a currency fall of more than 20 percent this year, by far the biggest decline among the Asian currencies tracked by Reuters.