study
INTRODUCTION
The Asian Financial Crisis, which started on July 2, 1997, was the third region-wide currency crisis in the 1990s. The first regional currency collapse was Europe in 1992-93, and the second was Latin America in 1994-95. One would have hoped that the voluminous research dissecting these earlier crises would have given governments and the International Monetary Fund (IMF) some ideas on how to read signs of an approaching regional storm. However, no red lights appeared to have flashed warnings of a crisis for the entire East Asia region before mid-1997. Only Thailand, with its large current account deficits in 1995 and 1996, looked a possible candidate for a devaluation, and even then the cautionary remarks on Thailand were hedged because these current accounts were seen to be financed by private capital inflows and hence to be sustainable in the medium term.
Were the exchange rate collapses in 1997 in Asia really unexpected as claimed by the governments in these countries? It would be naïve, of course, not to recognize that these governments would find it convenient to attribute the currency collapses on financial contagion, and divert blame away from any bad policies the governments had implemented. But it would be equally naive not to recognise that financial panic has been part of the human condition ever since asset markets were established.
Background
The seeds of the 1997-98 Asian financial crisis were sown during the previous decade when these countries were experiencing unprecedented economic growth. Although there were and remain important differences between the individual countries, a number of elements were common too most. Exports had long been the engine of economic growth in these countries. A combination of inexpensive and relatively well educated labor, export oriented economies, falling barriers to international trade, and in some cases such as Malaysia, heavy inward investment by foreign companies, had combined during the
The Asian Financial Crisis, which started on July 2, 1997, was the third region-wide currency crisis in the 1990s. The first regional currency collapse was Europe in 1992-93, and the second was Latin America in 1994-95. One would have hoped that the voluminous research dissecting these earlier crises would have given governments and the International Monetary Fund (IMF) some ideas on how to read signs of an approaching regional storm. However, no red lights appeared to have flashed warnings of a crisis for the entire East Asia region before mid-1997. Only Thailand, with its large current account deficits in 1995 and 1996, looked a possible candidate for a devaluation, and even then the cautionary remarks on Thailand were hedged because these current accounts were seen to be financed by private capital inflows and hence to be sustainable in the medium term.
Were the exchange rate collapses in 1997 in Asia really unexpected as claimed by the governments in these countries? It would be naïve, of course, not to recognize that these governments would find it convenient to attribute the currency collapses on financial contagion, and divert blame away from any bad policies the governments had implemented. But it would be equally naive not to recognise that financial panic has been part of the human condition ever since asset markets were established.
Background
The seeds of the 1997-98 Asian financial crisis were sown during the previous decade when these countries were experiencing unprecedented economic growth. Although there were and remain important differences between the individual countries, a number of elements were common too most. Exports had long been the engine of economic growth in these countries. A combination of inexpensive and relatively well educated labor, export oriented economies, falling barriers to international trade, and in some cases such as Malaysia, heavy inward investment by foreign companies, had combined during the