The Asian financial crisis: Causes, dynamics, prospects

Since mid‐1997 East Asia, which had long been acclaimed as the driving force of the global economy, has been wracked by financial turmoil. The international policy response has been led primarily by the International Monetary Fund with the full support of both the United States government and the European Union. Those who predicted that IMF policy prescriptions would quickly bring the Asian economic crisis under control have seriously underestimated the depth of the recession that has hit the region. This paper offers an explanation of the causes of the crises and, in doing so, provides a critique of the international policy response. It begins with an examination of the way that the crisis exemplifies the terminal collapse of Southeast Asia's fast‐track development model through case studies of Thailand and the Philippines. The second part offers a critical analysis of the IMF policies which have not only institutionalized stagnation in the region but have been used overtly by the Clinton administration (and the EU by default) to promote the trade and investment objectives of the leading states in the global economy. The third part examines the implications of IMF‐directed structural adjustment and suggests that with the strategic withdrawal of capital, East Asia may be on the threshold of a prolonged era of recession. The conclusion argues that the very severity of the crisis demands the serious consideration of a range of alternative political and economic strategies that will be essential for the pursuit of a model of sustainable development in the future.