Global Financial Crisis: FAIL Causes and Impacts
Because of globalization, our separated countries are all linked up together tighter than they have ever been before. For instance, the financial crisis in the United States in 2007 spread beyond national boundaries, affecting a wide range of institutions, financial and economic activities not just in the US alone but Europe, Asia and the rest of the world. The crisis causes a declining in GDP of some major developed countries such as the United States, Japan and the United Kingdom. The manufacturing industry in Japan is suffering right now and decline in exports reaching 49%. Whereas in the US, number of unemployment is going up. Cambodian’s garment export is also declining due to the fall in demand.
A financial crisis is a situation in which demand of money exceeds its supply. Typically, many financial crises are associated directly with commercial banks and financial markets.
What causes the financial crisis?
The root of the current financial started several years ago. In the early 2000, interest rate was very low in the US. As a result, people borrowed money and banks started to lend money to people. Sub-prime mortgage loans were given to people and business that have no or little income, no jobs or asset. The risk of these loans was very high. Home loans (Mortgages) were given to people for purchasing houses/properties. The banks in the US then sold these risky loans to other banks and financial institutions to the rest of the world. At the same time, some businesses went bankrupt or less profit because of soaring price of crude oil. As a result demand fell rapidly. Housing price began to fall and lenders were unable to get a return fund on the loans. Banks then stopped lending due to the lack of confident in other banks. As a result, some mortgages agencies and banks become worthless. More and more people are forced out of work due to companies’ layoff its workers and bankruptcy.
How has the financial crisis impacted on Cambodia’s economy?
We are living in the world in which what happen in one country will affect the rest of the world. Cambodia is no exception. According to Economic Performance and Outlook by Dr. Hang Chuon Naron, in 2008 the growth rate was as low as 6.8% and around 4.8% in 2009, the lowest growth since 1998. The economic decline affected Cambodia’s economy in some sectors especially, textile, tourism, real estate and construction. Cambodia has seen a decline in garment sale to the United States due to the fall in the demand in the US. Banking sector has also seen a decline in money being deposit in to banks because of the lack of consumers’ confident. The number of tourist arrivals reduced by around 2.18% in the first four months of 2009 compare to 2008, according to the figure from the Ministry of Tourism. Construction is also set to decrease, as foreign investors in real estate are either scaling back or suspending their projects as a result of the credit crunch in their home countries.
The Cambodia government has taken some measures such as strong supervision on the banking sector, subsidies in the agriculture sector; reduce taxes in some sector related to crisis such as textile, training schemes have been set up for laid-off workers, more budget has been set to serve as a stimulus plan to augment spending on infrastructure, agriculture and social program.
By: Y Daroadh
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Reference :
- Norton University Newsletter, September 2010 / January 2011, Page: 29.
