The Asian financial crisis has generated a lot of research, analysis and debate.The exact causes of the crisis are not firmly established, although varioushypotheses have been offered. This paper presents one view of the genesis ofthe East Asian crisis. Several explanations are examined: managed exchangerates, over and undervalued currencies, crony capitalism, asset bubbles,Japanese devaluation, or “too much” capital account liberalization.A large part of the analysis centers around the proposition that the regime ofmanaged exchange rates was at the core of the problem. In addition, the paperoffers an additional contributory cause of the crisis - China’s mercantilist policy.The role of the international system in allowing China to devalue its currency (byover 50 percent), despite burgeoning trade surpluses, is also addressed. Thepaper also explores the question of whether the Chinese economy needed anydevaluation in the early nineties.I have no doubt that this paper will provoke debate and contribute to a betterunderstanding of an issue which is occupying the minds of most policy makersaround the world.
Isher Judge Ahluwalia
Director & Chief ExecutiveICRIER, New Delhi