BANGLADESH INSTITUTE OF INTERNATIONAL AND STRATEGIC STUDIES

EXPLAINING THE EAST ASIAN CRISIS WITH BENEFITS OF HINDSIGHT

Author: S. M. Ashiquzzaman Ali Ehsan Pratik

DOI Link: https://www.doi.org/10.56888/BIISSj2000v21n2a3

ABSTRACT

A number of arguments have been put forward to explain the East Asian Crisis of 1997-1998. But as the crisis deepened and spread itself to other parts of the world, economists kept changing their views. Three major arguments stand out -fundamental weakness argument, moral hazard argument and creditors' panic argument. Although it is widely believed that fundamental weaknesses and/or corruption and moral hazard problems in the severely hit countries were responsible for their fall, this paper stands beside the third argument. It has been found that there were some imbalances in the fundamentals and some worrying financial sector weaknesses in the severely hit countries. But those were not severe enough to warrant a crisis as serious as the Asian one. Rather this paper argues in line with the third view that those weaknesses made these countries essentially vulnerable to a sudden shift in creditors' expectations. And as the creditors failed to coordinate their expectations, the vulnerable economies of East Asia were plunged into a crisis ..