Controversy

The Asian financial crisis (sometimes referred to as East Asian or Southeast Asian crisis) began in June 1997 in Thailand and within weeks and months had spread rapidly to neighbouring countries. The effects of the crisis were monumental, bringing about a deep recession in the area, rising unemployment, industrial breakdown and social dislocation. The Asian ‘Miracle’ had, in the space of weeks and months, completely collapsed. Years of strong growth, high foreign investment, rising employment levels and encouraging economic prospects were seemingly washed away within weeks, as recession and instability set in.

 How on earth did this happen?

 The question, much like the nature of the topic itself is a minefield of opinion. Academics argue over whether key economic indicators (Such as foreign debt growth vs. GDP growth, appreciating currencies, employment figures and Short vs. Long term reversible capital inflows) had shown noticeable adverse trends in the run up to the crisis. The consensus is that, although some economists had expressed concern (Krugman 1994), the majority had simply (and retrospectively incorrectly) assumed that it was ‘business as usual’ in Asia, and a slowdown in exports (to name just one factor) would not pose any residual danger to what had been from 1990-1996 one of the highest growth regions in history. 

To this day, economists still differ over the true determinants of the crisis. From unsound macro and microeconomic policies, the role of speculative hedge funds, the lack of a regulatory framework within many of the countries involved, the value of pegged exchange rates, political circumstances, investor confidence and more. This paper analyses all of these factors and more, offering a diverse range of opinion from pre-eminent economists, academics and politicians of the time.

Having examined the key factors behind the crisis, this paper then analyses the ‘contagion’ of the crisis and the rescue packages instigated by the IMF at the time, including a discussion of the controversies these policies emanated within the global economic community upon implementation (or lack thereof) by the principal countries involved. An analysis of the recovery of these countries (up until 2006) is detailed, with a brief speculation of future trends offered.

To conclude, an evaluation of the role of the IMF within the crisis and the future relevance of the organisation is questioned, with arguments both for and against the introduction of a new regulatory body to deal with future economic crises.