The East Asian crisis can be distinguished from Brazilís debt
crisis in the 1980s and the Mexican crisis of 1994-95 in a number of ways.
- The current problems in East Asia are linked to private sector
borrowing, especially short-term external borrowing, rather than public sector deficits.
- The affected countries faced the problem of the misallocation
of investment resources rather than overconsumption, since they have among the highest
savings rate in the world.
- The central issue was the problem of confidence rather than
macroeconomic fundamentals.
The East Asian countries had strong economic fundamentals with low inflation, high
savings, and a large skill base. However, the corporate sector became increasingly
vulnerable as a result of currency appreciation that eroded competitiveness in the
real sectors, while the financial system was heavily exposed to external borrowing,
property, and stock and shares.
The financial crisis triggered a loss of confidence in the
financial system, which was exacerbated by what was perceived to be the weak supervision
of the financial sector, inadequate corporate governance and lack of transparency.
