ABSTRACT
East Asia’s financial turmoil since mid 1997 has focused interest on crony capitalism and rent seeking in the region. In the immediate aftermath of the outbreak of the crises, which began in July 1997, many observers immediately assumed that the crises were due to poor macroeconomic management, as suggested by the second generation of currency crisis theories. The first generation of such theories – which had focused on public sector debt related to fiscal deficits – were quickly seen as irrelevant to Southeast Asia where all the affected governments had consistently maintained budgetary surpluses in recent years. It soon became clear, however, that all the governments affected had been maintaining decent macroeconomic balances except for large balance of payments current account deficits for Malaysia and Thailand, which had been bridged by massive capital inflows. With the debt – including foreign borrowings – mainly involving the private sector, and with continued high savings and growth rates as well as low consumer price inflation, most monetary and financial authorities in the region were being enthusiastically encouraged by the international financial community.
