The Determinants of Financial Crisis in Asia

Wade &amp. Veneroso (1998) emphasized the relentless campaigning by ‘Wall street-U.S. Treasury and IMF’ for Asian governments to open their capital markets and mentioned allegations of bribery of key people by Western and Japanese financial institutions (p. 9). Jagdish Bhagwati pointed out that Secretary Rubin came from Wallstreet and huge firms such as Morgan Stanley aim to open overseas market and promote ‘capital convertibility’ so they can operate and earn profits everywhere (p.19). Washington (like Korea), is also controlled by corporations because they finance election campaigns (Perkins: 2005).
Winters (2006) sought to answer why the Asian Crisis hit 98-99 and not earlier when the weakness of Korean ‘developmentalism’ was already chronic for years. He explained how each country was affected depended on the openness of the country’s financial system, lack of controls/regulations or enforcement of these controls, currency convertibility, short-term foreign loans exposure, and attractiveness of the country to foreign investors (p. 84). Asian corruption was not a significant factor as asserted by the propaganda of free-market capitalist that claimed financial liberalization/de-regulation will free Asian economies against corruption (Wade &amp. Veneroso 1998:20). Bhagwati, also added that foreign investments are not necessary for economic growth since Korea already has huge domestic savings which can capitalize on businesses (qt. in Wade &amp. Veneroso 1998:19-20).
On the other hand, Woo-Cumings (1998) rejected the Western Imperialism argument and asserted that ‘the Asian Crisis’ was bound to happen because of the inadequacy and failure of Korean ‘developmentalism’ to meet the changes in the world market (p.116). Firms were not profitable and have made massive wrong investment decisions (p.123). Lieberman &amp. Mako (1998) stated that by 1997, more than half of the thirty ‘chaebols’ employing 25 million workers with a debt of 103.4 trillion won, were at risk of defaulting on their debt (qt. in Woo-Cumings 1998:123). World trade, especially in semiconductors, was also slowing down due to a glut in the market (p. 120). Investors and creditors were already growing concerned about Korean firms (Sharma 2003: 186).
Most significantly, Cumings (1998) highlighted an important issue in Korea which is the strong motivation of the ‘chaebols’ to acquire foreign loans to free themselves of repressive government control (p.125). Government policy also deepened this problem by only allowing short-term foreign loans and not placing financial controls (Sharma 2003: 184). However, as Wade &amp. Generoso and Bhagwati (1998) have insisted. there would have been no credit crunch that destroyed even profitable and viable small and medium-sized businesses in Korea if the financial market was not de-regulated and opened to foreign investors.
Hamilton (1999) clarified that the deeper cause of the crisis was the structural change in the world economy wherein “producer-driven-manufacturing systems” were replaced by “demand-responsive-reflexive manufacturing” (p.60).