The Asian Financial Crisis, which Koreans generally refer as “the IMF crisis”, was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion. The crisis started in Thailand with the financial collapse of the Thai baht caused by the decision of the Thai government to float the baht, cutting its peg to the USD, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt. Foreign debt-to-GDP ratios rose from 100% to 167% in the four large ASEAN economies in 1993–96, then shot up beyond 180% during the worst of the crisis. In South Korea, the ratios rose from 13 to 21% and then as high as 40%, while the other Northern NICs (Newly Industrialized Countries) fared much better. Only in Thailand and South Korea did debt service-to-exports ratios rise.
As a Korean, I remember the events (at least those dealt in the media) like they happened yesterday. Everybody was panicking. They said Korea was ‘broke’. My parents told me that our financial status was barely standing. I was too young to understand the financial mechanism behind the crisis, but I did understand that many people were desperate enough to commit suicides. I remember ANABADA movements, the basic idea of which was to cut down household expenditures to the level of pure necessity. (It is ironic though, considering many scholars have argued that Korea’s fast recovery from the crisis was available due to high consumption rates.) I also remember nationwide gathering and melting of gold. It was supposed to be a symbol of unity and strength of Korean peoples’ resolution. But even though I remember and partially sympathize the fuss we went through, I never really understood why the crisis occurred or what the underlying problems were. Until recently, I just assumed that the endogenous defects of poorly planned or dictatorship-led macroeconomic policies of each Asian developing country have caused the crisis simultaneously. It is true, but following the logic of Robert Gilpin, more fundamental and structural cause can be found.
According to Gilpin, the East Asian financial crisis and subsequent global financial turmoil did indeed follow Hyman Minsky’s model, which can be summarized as risky speculation, monetary (credit) expansion, a rise in the price of desired assets, a sudden and unexpectedly sharp fall in the price of the assets, and a rush into money or quality investments. Unlike most economists who assume that the general theorization of global financial crises is impossible because every respective event is historically unique, Minsky insisted that “the financial instability” theory can explain the mechanism behind the financial crises. His model is quite similar to what happened at New York Stock Exchange in October 1929. The basic idea is as follows; false hype creates a bubble that heightens the value of asset way beyond it is actually worth, making people invest in it speculatively (the mania); when the increasing price reaches its peak (or when some speculators believe it to be) and begins to slightly fall, investors start to freak out and try to pull out their funds and move to another less risky area (the panic). In our case, the speculative investments in emerging markets by international banks and highly leveraged hedge funds fueled the mania and the investment bubble, until the collapse of the Thai baht on July 2, 1997, signaled the end of the East Asian “miracle”.
Of course, there are so many factors in the collapse of the East Asian financial market that even till today the controversies continue. The most general explanation is the one which I had since I was a kid, that the domestic economical or financial structures and bad macroeconomic perspectives of fast growing East Asian countries were the primary cause for the crisis. But I do believe that it is also important to understand the intrinsic financial instability induced by the economic globalization. This kind of concern expressed by Gilpin spontaneously leads to the search of some kind of regulatory systems. Scholars including Paul Kindleberger, Susan Strange, and James Tobin note that the international financial system is the weakest link in the chain of the international economy and that international finance should be regulated effectively. Financial markets, these scholars have argued, are too subject to irrational manias and crises and cannot police themselves. Some suggests the international taxation to discourage financial speculation, and other suggests the creation of an international central bank to govern the international finance with similar macroeconomic measures provided by domestic central banks.
Thus, one can conclude that the cause of Asian financial crisis in 1997 was largely a combination of domestic failures regarding the macroeconomic policies and international instability in financial flow. Though, one cannot judge which one was more fundamentally responsible. Maybe the macroeconomic instability of each Asian nation has invited strategic speculators, or maybe the mania or “euphoria” created by the speculative investments has led policy makers to indulge in a wishful thinking. However, the real lesson in looking back at the crisis is that the international political economic system (at least in financial area) is highly interdependent and to quote some of the realist perceptions, “mutually vulnerable”. I am inclined to support the idea that says there should be a global regime that can regulate these kinds of market failures. Although the respective financial crises differ in specific historical origin, they do have something in common and even if there is none, there should be more positive and collective efforts to resolve the structural defect underlying in international financial market.
 Wikipedia page : (http://en.wikipedia.org/wiki/1997_Asian_Financial_Crisis)
 Robert Gilpin, [Global Political Economy] (Princeton University Press, 2001) p.268