The Asian debt-and-development crisis of 1997?: Causes and consequences

Interpretations of the Asian crisis have coalesced around two rival stories: the "death threes of Asian slate capitalism" story about internal, real economy causes; and the "panic triggering debt deflation in a basically sound but under-regulated system" story that gives more role to external and financial system causes. The paper presents the stories and assesses the evidence. The evidence - in particular, the chronology of the crisis - supports the second rather better than the first. The paper discusses the interests driving capital account liberalization without a framework of regulation, the single most irresponsible act of public authorities in the whole crisis. US and UK financial firms, allied with their treasuries and with the IMF, the WTO, and the OECD, saw themselves at a chronic disadvantage in the Asian system of long-term relationships and patient capital. This alliance, supported by segments of Asian political and financial elites, achieved dramatic domestic financial sector liberalization and capital account opening in Asia over the 1990s, setting up the conditions for crisis. Paradoxically, the crisis may be looked back upon not as the triumph of benign globalization and neoliberal economic doctrine but as the beginning of its end. (C) 1998 Elsevier Science Ltd. All rights reserved.