The East Asian Financial Crisis: Diagnosis, Remedies, Prospects

"HISTORY," JAWAHARLAL NEHRU famously observed, "is almost always written by the victors. " I Financial history, it seems, is written by the creditors. When a financial crisis arises, it is the debtors who are asked to take the blame. This is odd, since a loan agreement invariably has two parties. The failure of a loan usually represents miscalculations on both sides of the transaction or distortions in the lending process itself. The East Asian financial crisis has so far been true to form. As soon as the crisis hit in mid-1997, the International Monetary Fund (IMF), which led the official international response, assigned primary responsibility to the shortcomings of East Asian capitalism, in particular, the East Asian financial markets. The IMF's principal strategy for the three countries hardest hit-Indonesia, Korea, and Thailand-was to overhaul their financial systems. The basic diagnosis was that East Asia had exposed itself to financial chaos because its financial systems were riddled by insider dealing, corruption, and weak corporate governance,