The Asian crisis and financial and capital account liberalization

One of the puzzling phenomena recently had been the sudden drop of external confidence in five Asian economies: South Korea, Indonesia, Malaysia, Thailand and the Philippines. The persistence, wide-impact, and underlying causes of this Asian crisis sets itself apart from the earlier Chilean and Mexican experiences. After discussing various explanations of this crisis, low marginal productivity of capital, Minsky's financial instability hypothesis, fixed exchange rates and un-hedged borrowings, ‘push’ factors and rise in country risk, regionalization and contagion, and institutional factors, it compares it to the Chilean and Mexican Crises. It emphasizes the need for the developing countries to strengthen their institutions at the same pace as they liberalize their financial sector and open-up their capital accounts.