Introduction

In the eyes of many observers and analysts, the 1997 `Asian Crisis’ has abruptly put an end to a mode and cycle of uninterrupted economic growth in a number of Asian countries,1 by highlighting the many inherent contradictions characterizing the chosen unsustainable development paths. Others see in the crisis the manifestation of hidden weaknesses that compel these economies to put in motion regulatory mechanisms that will, after a given time for adjustment, secure high growth rates in the future, without fundamentally challenging the chosen mode of development. Although there is today quasi-consensus, among economists and business analysts on the type and nature of these contradictions and weaknesses, the different weights accorded to them explain the two broad diverging views referred to above. We can group these contradictions and weaknesses into two major categories. The first category refers to the so-called ‘structural weaknesses’ of the Asian economies, and encompasses the lack of corporate governance; the laxity of public policy makers; the proliferation of incestuous relationships between corrupted governments, large domestic financial institutions, and large domestic manufacturing conglomerates,2 opaque accountancy and legal systems; and nonsustainable business practices accounting for low levels of total factor productivity (TFP). The other category refers to external variables such as an excessive liberalization of capital markets; persistent levels of overinvestment since the mid-1980s; the slowdown in the growth of Asian exports in the mid-1990s; and the chosen exchange rate policy which, through a system of currencies pegged to the US dollar, has contributed to massive inflows of capital and to the large current account deficits recorded before the crisis in the respective countries.