From Miracle to Panic and Back: The Asian Crisis

After getting through the Mexican crisis largely undamaged, international banks and investors in foreign bonds resumed lending to emerging countries at a fast clip in 1996. Private capital flowing into these countries reached $338 billion that year against a previous high of $201 billion in 1994 and a mere $75 billion in 1990. Much of this capital found its way to Asia, a large part of which was enjoying rapid growth. The economic image of developing Asia, especially its Eastern regions, had undergone a major transformation since the dismal economic performance of many decades after the Second World War. The two developing Asian giants, China and India, remained mired in poverty for a very long time, in sharp contrast to Japan. The situation was vividly depicted by the Swedish economist Gunnar Myrdal, who wrote an influential book with the title Asian Drama.1 By the 1990s the prospects for the emerging Asian economies were vastly different, thanks to rapid economic growth, first generated by the Asian Tigers, including South Korea, Taiwan, Hong Kong, and Singapore, later joined by Malaysia and Thailand and, to a somewhat lesser extent, Indonesia, who were designated the Newly Industrialized Countries (NIEs). China, spurred forward by the movement toward a “socialist market economy” engineered by Deng Xiao Ping, was by then making enormous strides. In 1993 the World Bank released a widely quoted study entitled The East Asian Miracle, which looked into the causes of the successes enjoyed by a number of Asian countries.2