Asian Financial Crisis of 1997 to 1998

This article records tradition as it has been passed down and reported. Its sources are not yet part of the atlas's verified catalogue.

On 15 January 1998, President Suharto of Indonesia sat at a desk in Jakarta and signed a tougher letter of intent with the International Monetary Fund, a further round of austerity terms demanded in exchange for continued bailout support. Standing over him as he signed, arms folded, was IMF Managing Director Michel Camdessus. The photograph, taken from an angle that made Camdessus look like a schoolteacher disapproving of a pupil's work, circulated widely and became, in Indonesia, one of the most symbolically loaded images of the entire crisis, read by many as a moment of national humiliation before a foreign institution. Four months later, after riots in May 1998 left more than a thousand people dead in Jakarta alone and students occupied the parliament building, Suharto resigned, ending thirty two years in power. Camdessus himself later reflected, at his 2000 retirement, that the IMF had created the conditions that obliged Suharto to leave his job, a striking admission of how directly the crisis and its foreign-imposed terms were entangled with the fall of one of the era's longest-ruling governments.

This article records tradition as it has been passed down and reported. Its sources are not yet part of the atlas's verified catalogue.

Within months of the Thai baht's 1997 collapse, economists split sharply over what had actually happened. Paul Krugman's influential 1998 paper What Happened to Asia? argued the crisis was fundamentally a crony capitalism story: implicit government guarantees to politically connected firms, Thai financial companies, members of the Suharto family, Korea's chaebol conglomerates, produced moral hazard and reckless overinvestment in bad assets, a bill that eventually came due all at once. Robert Wade and Frank Veneroso rejected that reading almost immediately, in a New Left Review article the same year. They pointed out that most of the debt involved was private rather than the sovereign borrowing that had driven Latin America's 1980s crisis, and that the macroeconomic fundamentals, low inflation, budget surpluses, had looked sound right up to the crisis. Their alternative explanation was a foreign-creditor liquidity panic, made worse rather than better by the IMF's own prescription of bank closures without deposit insurance and demand-crushing austerity. Economist Jeffrey Sachs put their objection more bluntly still, quoted in the same debate: instead of dousing the fire, the IMF in effect screamed fire in the theatre. Two decades on, both camps still have defenders, and the crisis remains a standard test case in arguments over financial contagion versus institutional failure.