From meltdown to recovery: Towards a new understanding of the Asian financial crisis of 1997 and its aftermath

Abstract

There is no easy explanation for the Asian financial crisis of 1997. The current literature focusses on structural weaknesses, mismanagement and international capital flows as the primary causes of the Asian financial crisis. This paper seeks to highlight some important factors that have been left out by the current literature. The author argues that three external shocks carry some responsibility for causing and extending the crisis: the devaluation of the Chinese yuan in 1994; Japan's recession; and the strengthening of the US dollar in foreign exchange markets. The second section analyses some of the reasons for Asia's remarkable economic recovery, principally by evaluating the role of the International Monetary Fund (IMF); while the IMF was a key actor, it was an improved external environment that fuelled Asia's recovery. The paper concludes by outlining what else the crisis‐affected Asian countries need to do to continue on the path towards economic recovery.