Capital Mobility, Exchange Rate Instability and Contagious Credit Crunches: The Causes and Spread of the Asian Financial Crisis

Abstract

The Asian financial crisis led to eighty million new cases of absolute poverty being recorded in only six months after the first of the region’s currency depreciations (IMF 1998). This represents the most concentrated incidence of new poverty cases in history, and most of it occurred in countries where, over the previous three decades, unprecedented increases in economic well-being had occurred (Stiglitz 2002: 91–2). This outcome was a manifestation of the intense distributional struggles which followed as currency collapses led to a regional credit crunch. The ensuing loss of GDP meant that some people would have to forgo their current net economic worth. Yet, a number of speculators made their fortunes from taking preemptive positions against the stability of existing exchange rate pegs, many international banks cashed out loss-making investments before the eventual depreciation in the hope of avoiding larger losses in its aftermath, and many more stayed in their positions and waited for the IMF to decree that all non-performing loans should be repaid in full. In general, the greatest burden of the crisis fell onto ordinary people (Lee 1998: 43–5).