Asia, 10 years after the great currency crisis, in the Economist:
Ten years ago, on July 2nd 1997, Thailand’s central bank floated the baht after failing to protect the currency from speculative attack. The move triggered a financial and economic collapse that quickly spread to other economies in the region, causing GDP growth rates to contract precipitously, bankrupting companies that had overexposed themselves to foreign-currency risk, and ultimately necessitating costly and politically humiliating IMF-led bailouts in the worst-affected countries. Thus began the Asian financial crisis of 1997-98. Its effects, and governments’ subsequent responses to it, have defined much of the region’s economic policies and direction in the past decade. What has been learnt, and how has the region changed in the intervening period?
The financial crisis can be described as having been a “perfect storm”: a confluence of various conditions that not only created financial and economic turbulence but also greatly magnified its impact. Among the key conditions were the presence of fixed or semi-fixed exchange rates in countries such as Thailand, Indonesia and South Korea; large current-account deficits that created downward pressure on those countries’ currencies, encouraging speculative attacks; and high domestic interest rates that had encouraged companies to borrow heavily offshore (at lower interest rates) in order to fund aggressive and poorly supervised investment. Weak oversight of domestic lending and, in some cases, rising public debt also contributed to the crisis and made its effects worse once the problems had begun.