MSc Development Studies 2003/4
Module: Images of Development
What were the main causes of the East Asian financial crisis?
The East Asian financial crisis of 1997 represented a major interruption in the rapid economic and social development enjoyed by much of the region in the decades leading up to it. In less than a year, some East Asian economies went from being examples of successful development practice to a situation of economic stagnation and decline. Growth rates that had averaged 8-10 per cent per year over many years turned negative, economies that enjoyed continuous high employment and experienced labour shortages suffered from rapidly rising unemployment levels, and stock market assets lost half their value. In a region where growth was dubbed ‘miraculous’, economies became structurally unstable and needed rapid intervention by international agencies such as the IMF (UNCTAD, 1998). The crisis arose from the large scale shift of funds out of domestic financial markets in the region, starting in Thailand (IMF, 1997). The effects of the financial crisis are still having an impact not only in the region but are also reverberating around many other parts of the global economy.
This essay first attempts to define ‘East Asia’ by reviewing the different sets of countries in literature focussing on the crisis. It outlines the countries that suffered most as a result of the crisis, by examining pertinent economic and financial indicators in the region. It asserts that a discussion of the causes of the crisis is impossible without an understanding of the development process in the region before crisis, and examines the particular circumstances in the region that may have contributed to the onset financial crisis. It then looks at the context for the financial crisis and focuses on events in Thailand - the country where the crisis first took hold – in an attempt to identify the relative importance of the various underlying causes of the crisis put...