20 years of Asian Financial Crisis: How rising tiger economies went awry

A look at the evolution of Indian economy and the East Asian tiger economies over the years

As the world marks 20 years of the 1997 Asian financial crisis, it is pertinent to look back at the time when several rising East Asian Tiger Economies were thrown into disarray due to a host of reasons. Till date, economists and observers have been cautious about blaming the crisis, triggered by the devaluation of the Thai baht, on any single economic factor. 

Economists have blamed underlying macroeconomic weaknesses in these economies, hot money flows with no corresponding appreciation of domestic currencies, and large external debts, among other things for the panic. 

The International Monetary Fund, in a working paper titled “The Asia Crisis: Causes, Policy Responses & Outcomes” published in 1999, and authored by Andrew Berg, stated, “While there were some structural and macroeconomic problems in the affected countries, these were largely avoidable financial panics — rational ‘bank runs’ against otherwise viable economies. 

The most affected countries had a high ratio of short-term external debt to GDP. This implied that if foreign creditors became convinced that other creditors would not roll over their claims, there were not enough reserves to cover the maturing obligations. Panics became self-fulfilling.” India, meanwhile, remained largely impervious to the crisis that was unfolding in other East Asian nations such as Indonesia, Malaysia, The Philippines, Thailand and South Korea. 

While it was true that foreign capital flows were not given unfettered access to Indian markets as was allowed by these countries, the following six visualisations that juxtapose India’s economic parameters to those of the crisis-afflicted nations point to certain fundamental strengths in the Indian economy and flaws in the East Asian Tiger Economies at the time of the crisis and their evolution till date.