If we looked only at the economic data, it is not clear why we would revisit the Asian financial crisis 20 years out. Although the trouble started earlier, the affected economies did not begin to contract until the first quarter of 1998, and growth rates had turned positive by mid-1999.
What made the Asian financial crisis such a shock was the previous success of its victims and their apparent conformity with economic orthodoxy. The developing world had seen financial crises before, particularly a wave beginning in 1983 triggered by the second oil shock: Mexico Brazil, and Argentina, spreading to the Philippines, Poland, Turkey, and a number of low-income African countries. The early crisis countries had in common not only fixed exchange rates, but a commitment to import-substituting development strategies. Protection and overvalued exchange rates generated recurrent balance of payments problems. Euromarket lending was seen as financing profligate public sectors if not populism and outright corruption.
The East Asian countries shared some of these disabilities, most notably fixed exchange rates. But over the 1960s and 1970s, Japan, then South Korea, Taiwan, Hong Kong, and Singapore, along with enclaves such as Penang in Malaysia, became poster children for export-oriented growth strategies. Trade policy was by no means laissez-faire, but complex systems of tariff exemptions and aggressive exchange rate policy made for highly competitive economies exploiting comparative advantage in labor-intensive activities. Observed fiscal deficits were also moderate by virtually any standard.
In a controversial report on the Asian miracle in 1993, the World Bank even gave the eight “high-performing East Asian economies” a pass on their industrial policies. To be sure, governments had intervened to promote particular sectors. But they did so in “market-conforming” ways that did not fundamentally challenge neoclassical orthodoxy or the logic of comparative advantage.
What went wrong? What lessons can we draw? And could it happen again?