An Astounding Comeback

Perhaps, it was the severity of the crisis which left banks bankrupt and not vice versa, says A V Rajwade

It is just about a month short of three years since the balance of payments crisis in east Asia erupted, engulfing Thailand, Malaysia, Indonesia and South Korea in its spread. The Asian Tigers, having recorded enviable growth for years, and boasting sound fiscal balance, were humbled: They (with the exception of Malaysia, which imposed capital controls) had to go hat-in-hand to the IMF which spearheaded a huge loan program, accompanied by the standard demand and consumption suppression medicines. In retrospect, to my mind, the underlying causes were:

 

Unsustainable exchange rates and current account deficits; and

A huge amount of short-term external debt capital which flew out at the first signs of trouble.

Western commentators are wont to blame crony capitalism and weak banking systems. Capitalism suffers from cronyism everywhere