East Asian Financial Crisis: Alternative Approaches

Abstract

East Aaian economies were considered as "miracle economies" because of their sustained high rate of economic growth during the last two decades. In 1997 these economies suffered financial crisis due to several reasons. An attempt has been made in this paper to give alternative approaches to explain the crisis. Financial and capital liberalization without a framework of prudential regulation caused the financial crisis of the East Asian countries. No Institutional and operational frame work exist for financial sector to function effectively under market conditions. These economies are not well equipped to absorb the shocks of capital liberalization. The financial crisis of East Asian economies fit the model of speculative cycles developed by Minsky. According to the model, foreign capital inflows intermediated through the banking system were used to fuel a boom in asset prices in equity and real estate. As a result, the stock and real estate prices shot up. The event of non-repayment of...