Year 2008 is remembered, in History books, as the year of a major economic crisis throughout the world. As most papers put it mentioning as, "The worst since the great depression". But as the world suddenly pays attention to its economic system and its (present) prominent imperfections, it may shed some light on another major economic crisis: The Asian crisis of 1997. The crisis affected the majority of Asia, the countries suffering the most being Thailand, South Korea, Indonesia, Malaysia, Singapore and the Philippines. Of course, it wasn't as discussed as it is in today's situation, probably because it only affected the developing countries and it was blamed on its uncontrolled development. In this way people didn't have to question the system. Eleven years have passed by, and it is now possible for economists to gather policymaking lessons about what happened in 1997 in Asia and what was done to deal with it.
But before we go any further with this study, it is absolutely crucial to bring up the facts about the above-mentioned Asian crisis, without going too much in detail. In the early nineties, the world was in admiration at what was commonly called the "Asian economic miracle", and the spectacular growths of the Asian "tigers" or "dragons" (which was around 10% GDP on average) were recommended as the models to be followed for all developing countries. This growth was sustained (only for certain countries) since the sixties, who were following the footsteps of ultra-dynamic post-war Japan. They set a textbook pattern of export-driven growth, where exterior demand was a motor of fast growth (taking advantage of cheap labor in these countries), and investments were made to improve education, and thus improving the population's productivity
[...] In fine, it appears that the Asian crisis has had a profound impact on the way economists conceive the economy, proving a number of theories wrong and showing the limits of the current system. In terms of policy, in a time where the question has been and will be asked, it seems like two general approaches can be chosen. The first of them is to go against the dominant neo-liberal ideology and promote a new global system that would still be based on free trade and the global market, but with a new emphasis on protection (from financial hazards) and on the importance of real economy. [...]
[...] The capital inflow was estimated at in 1996, and the outflow valued at in 1998.And if the reasons behind the crisis are disputed (of course) by economists, the facts are here: the ASEAN (Association of Southeast Asian Nations, a local trade union) suffered a fall of of its GDP in 1998 (in nominal US Dollar), and the exchange rates of the countries affected fell, sometimes very badly (the exchange rate of the Indonesian Rupiah fell to the US Dollar in 1998). [...]
[...] He showed, without predicting the crisis, that the growth of these countries wasn't managed so well, and that it didn't have the foundations to be sustainable (Asian countries were investing in the wrong places and counting on their comparative advantage which was cheap labor without increasing their productivity significantly). The problem of asymmetrical of information (which always comes up in an economic crisis) also played an obvious role, since the lack of transparency attracted too much foreign investment to begin with, before scaring them off later on, when the crisis was spreading. [...]
[...] Moreover, based on this crisis, voices have claimed that relying too much on external capital could only be dangerous for an economy, as it had been the case with Asian economies. They had built their incredible growth on foreign exports and investments, and were left for dead as soon as capital fled. The very fact that China (that is, People's Republic of China) and India suffered very little from the crisis, as they were not participating to the global capital market, seems to back this thesis. [...]
[...] What happened is that investors didn't trust the rescued economies and their artificial IMF-funded interest rates, and preferred to invest in lower interest rates but safer economies, as Asian countries were subject to deep social uncertainty. To the harshest critics of the actual system and its reaction to the 1997 crisis suffered from being guided by neoliberal principles. Policy should be guided, or at least sensible to other principles, such as Keynesian ideas, and make efforts to prevent the crisis. [...]
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