ABSTRACT
This chapter begins with the proposition that the Philippines was an unwitting participant to the Asian economic crisis. It discusses how the liberalization process sets the stage for the currency attack in 1997. The chapter explains the extent of the crisis in the Philippines, and demonstrates that the crisis is real, with profound effects on employment, growth, and policy, even though the principal problem is a confidence crisis. It also discusses the responses of the Philippine authorities and Philippine political forces to the crisis, as well as prospects for Philippine recovery. The weaknesses in the financial system are built up in the wake of the "twin liberalizations": the liberalization of the domestic financial system and the opening of the capital account. The pattern of resident versus non-resident portfolio flows reveals much about the impact of the capital account opening in the Philippines.
