The Asian financial crisis: Genesis and exegesis

The early stages of the 1990s turmoil in Asian financial markets were described as ‘a few little glitches in the road’.2 Now it is recognized as one of a series of major financial crises to have hit the world economy in the past decade. The main features were:

● private capital markets withdrew their support from countries that for several years had been recipients of large capital inflows;

● the defensive package of foreign exchange market intervention, sharp rises in interest rates and selective controls proved inadequate to avert devaluation of some formerly fixed exchange rates;

● large unhedged foreign exchange positions and weak banking and financial systems contributed to vulnerability and sharply constrained the authorities’ room for manoeuvre;

● the trauma quickly spread out from its original locus to affect exchange rates and other asset prices in the region (and for a short while, in major industrial countries as well);

● large, multilateral official rescue packages had to be mobilized; and ● the events generated calls (both within the region and beyond) for stronger

preventative arrangements to reduce the likelihood and severity of future outbreaks.