Gestalt Shift: From ‘Miracle’ to ‘Cronyism’ in the Asian Crisis

Summary Crisis explanations focussing on either domestic vulnerabilities or moral hazard do not seem to cover the Asian crisis well, while hypotheses focussing on investor panic appear to be more consistent with the observed facts. Asian economies were characterised by high savings rates and high levels of bank mediated corporate debt. Capital account liberalisation during the 1990s, without corresponding domestic prudential control mechanisms, exposed this high debt model to international volatility. The crisis is essentially a deflation crisis and IMF responses, including pressure for high interest rates and further capital account liberalisation, are inadequate in this case.