Orient Excess

In 1997 a financial crisis struck the so called Asian tigers – Hong Kong, Philippines, Singapore, South Korea etc.  The following video provides a short insight into how the crisis unfolded and highlights a number of important factors.

Notably, like both the Florida housing bubble which preceded the Great Depression and the wider housing bubble which preceded the 2008 crisis, a property boom (1995-1997) paved the way for the Asian crisis.  Furthermore, this was facilitated by increased money supply which encouraged individuals to take on more debt, and ultimately this liquidity glut fueled the housing bubble. 

Radelet and Sachs (2000) suggest that the crisis was characterized by government policy errors, international panic and the lack of an international rescue program.  Furthermore, Rajan and Zingales (1998) also suggest that the relationship-based system (more information here) led to an accumulation of short term capital inflows which are prone to panic and bubble formation.  Interestingly, this relationship-based capitalism led to the emergence of a bubble in a system with poor transparency, similar to the derivatives story of the 2008 crisis.  Additionally, government failure is common in both the Asian crisis and the 2008 crisis (e.g. actions of ECB).

Despite the 1997 crisis, capitalism continues to flourish in Asia.  An interesting FT article (full article here) suggests that whilst the 1997 crisis was a blow to capitalism, memories of Indian Nehruvian socialism or the Maoist centrally planned economy quickly erode any misgivings of the capitalist system.  However, the Asian crisis also brings to the fore another pertinent issue – crony capitalism (Kang, 2002).