In this paper we shall sketch the anatomy of the Asian financial crisis which
erupted twenty years ago. In order to answer the question of how and why
this crisis developed and what went wrong in its aftermath we embrace the
Financial Instability Hypothesis of the seminal post- Keynesian economist
Hyman P. Minsky. The real causes of the Asian crisis were endogenously
developed euphoric expectations that followed financial liberalisation and
deregulation and propelled the creation of an inverted capital structure and
financial fragility. After the initial crisis and subsequent abrupt reverse
of investor?s sentiments, the International Monetary Fund intervened and
multiplied financial difficulties that strangled regional economies.
Fortunately, gradually and in line with the Minskyan approach to financial
crises, the International Monetary Fund learned from its Asian mistakes, and
starting from the outbreak of the global financial crisis in 2008 and the
succeeding financial crisis in Eastern Europe in 2009, dropped its
opposition to capital controls and its support for austerity measures in
crisis-hit emerging market economies.
A fresh view twenty years on: The Asian financial debacle and the Minskyan lessons learnt by the International Monetary Fund