Gregory W. Noble and John Ravenhill, "Cause and Consequences of the Asian Financial Crisis," in Gregory W. Noble and John Ravenhill, eds. , The Asian Financial Crisis and the Architecture of Global Finance, ed. , Cambridge, 2000, pp. 1-35
The Asian financial crisis resulted from the sudden flight of large amounts of capital from Asian countries that lacked adequate systems of prudential regulation, and whose foreign exchange rates proved disastrously brittle. The crisis was unique in its unprecedented severity of corporate distress and banking sector problems, and its quickness in recovery from the crisis. While technical improvements in the financial system were institutionalized, the crisis did not bring fundamental structural revisions, in both the political and economic arenas. Doughty resistance from entrenched ideologies and interests in the U. S, the U. K, and the IMF prevented the reforms and rearrangements in the international financial system from happening.
The East Asian crisis---the severest jolt to the world economy since the Oil Shock in the early 1980s.
Asian Crisis ---spread from Thailand to Indonesia, the Philippines, Malaysia, and Korea.
Sequences---Export decline ( loss of investors' confidence( Currency devaluation due to lack of foreign reserve( IMF emergency fund requiring tight budget and monetary policy( increase in non-performing loans and damage in domestic industries Drastic increase in international private capital inflow in the '90s was key to understand this crisis.
Liberalization within a flawed policy framework Inadequate regulation to cope with capital inflow---lack of experience and expertise, the predominance of short-term debt (which made economies vulnerable to speculative attack), newly-licensed banks (with risky lending practices, and unproductive, speculative investments.
Fixed exchange rates exacerbated the vulnerability of economies to crisis---uncontrolled capital inflow invited over-money supply and inflation. Currency appreciation harmed export competitiveness. It also created a moral hazard to the domestic borrower with no risk of the exchange rate.
Distinguishing crisis and non-crisis economies, China and Taiwan were not affected as much as Thailand, Indonesia, and Korea. (see Table 1. 1 p202/p7) The combination of capital account liberalization and an inflexible exchange rate were the common characteristics of heavily affected countries. Less-affected countries held prudential regulation.
Causality? Two opposing view---fundamentalists vs panic-striken.
For fundamentalists, root causes of crisis lay in misguided economic policies, e. g. "Crony capitalism", and analyze that liberalization of their financial system was not enough.
The panic-striken argue, in contrast, that fundamentals of the Asian economies were sound and that hasty liberalization of their financial system, followed by the asset bubbles, was root cause. (Jagcish Bhagwati, Joseph Stigl...