ABSTRACT
International funds may be returning to only partially reformed East Asian financial markets, but the impact on the structure of the economy of the region has been in many ways much more substantial than in financial markets. Critics pointed to weak banking systems, poor financial regulation and all to ‘crony capitalism’, corrupt linkages between business and government that had led to ‘moral hazard’ for both lenders and borrowers as it became increasingly difficult to judge what was private and what was sovereign risk. Kindleberger suggested the model was particularly applicable to international financial and currency markets. In these markets, unlike the domestic economy, the degree of control governments can exercise to restrain excess are severely limited. Reform of the financial sector in Indonesia, Thailand, Malaysia and South Korea has only just begun and is a long way from completion.
