The East Asian Crisis: A Minskyan View

Abstract

There is no shortage of explanations for the series of crises that engulfed East Asia in 1997–1998. While there is no easy way to group up the various interpretations of what is now widely referred to as the ‘Asian financial crisis (AFC)’, three theories stand out. To many mainstream economists, the crisis represented a typical ‘twin’ financial crash, a dangerous cocktail of information asymmetries, financial market failures and, crucially, inept government interference in the workings of the markets. The Asian model of state dirigisme has proved deficient, prone to inherent cronyism and corruption. In essence therefore, the Asian financial crisis of 1997–1998 was a crisis, as a World Bank report concludes, of crony capitalism:

[t]he interaction of these institutional weaknesses with international capital markets imperfections, and the use of inconsistent macroeconomic policies to manage surging capital inflows generated crucial vulnerabilities that laid the groundwork for the subsequent financial crises — and ensured that their consequences would be severe (World Bank 1998/99: 57).

I am indebted to Virot Ali for his research help and expertise on East Asia.