THE CURRENCY AND FINANCIAL CRISIS IN SOUTHEAST ASIA – A CASE OF `SUDDEN DEATH’ OR `DEATH FORETOLD’

Almost all existing studies on the causes, consequences and policy
implications of the economic and financial crisis faced by East Asia have provided
only a cursory discussion of broad data at best, or have fallen into the trap of merely
stating the weaknesses in the economies as a matter of fact at worst. Ex-post facto
analysis is of little value. In this paper, limiting our focus to the Southeast Asian
economies (viz. Indonesia, Malaysia, Thailand and the Philippines), we carefully
scrutinise the available economic data in a systematic manner, with a view to
determining whether there were possible indications of discernible deterioration in
economic fundamentals that might have been indicative of an impending crisis. In
other words, we aim to determine whether the crisis was a death foretold (i.e. an
accident waiting to happen) as most observers seem to assume, or a quick and
sudden death as Sachs et al. (1996b) have suggested of the Mexican crisis of 1994-
95. We take pains to focus solely on the policies/factors that seemed to have a direct
impact on the crisis. To get a sense of proper prospective, we consider both trends in
the various indicators of the Southeast Asian economies from 1990 to 1996 (just prior
to the onset of the crisis in mid-1997), as well as compare their performance to the
Latin American economies of Argentina, Brazil and Mexico. While such inter-regional
comparisons and generalisations are conceptually useful, intra-regional differences
are highlighted where deemed necessary. After the determination and clarification of
the analytical issues, we move on to discuss important lessons for economic policy.
Focus is both on policy lessons (at national, regional and international levels) for
recovery as well as for reform, so as to reduce the possibility of such a crisis surfacing
in the future (or at least to mitigate the adverse fallout if or when it does occur).