ABSTRACT
The East Asian crises of 1997-1998 gave rise to two major responses from mainstream or orthodox economists. The first was an attempt to explain the unexpected events from mid-1997 in terms of several aspects of the orthodoxy, especially theories of currency crisis. Proponents of this explanation made much of current account or fiscal deficits, real as well as imagined. When this line of reasoning clearly proved to be wrong, inadequate, or unpersuasive, the second line of defence was to turn the preceding celebration of the East Asian miracle on its head by suggesting that key elements of East Asian exceptionalism, for example, government intervention and social capital, were responsible for the crises. Those promoting this explanation emphasized cronyism (government favouritism for particular business interests) and poor corporate governance – both genuine problems, but irrelevant in this context – with some grudging acknowledgement of the poor or wrong sequencing of financial liberalization, rather than the implications of liberalization itself with its open capital accounts.
