The financial crisis that erupted in Thailand in 1997 and quickly spread to the rest of Asia has exerted a dramatic impact on the global political economy. The magnitude of the crisis was striking. It brought Indonesia to its knees, pushed Korea and other countries suddenly and deeply into recession and threatened the financial system of China. However, the sheer size of its impact on affected economies is only one aspect, and perhaps not the dimension that distinguishes it from other debt crises in recent decades. After all, the Latin American debt crisis of the early 1980s led to a ‘lost decade’ of economic retrenchment in an entire continent, and posed a greater threat at the time to the financial integrity of overexposed Western banks. The African debt crisis, while of only minor significance to the international financial system as a whole, has left already poor countries in desperate straits from which there is no easy exit.

The Asian crisis was particularly notable in other aspects. First, it occurred after a huge upsurge in the mobility of international capital. Foreign money swept into Asia in the early 1990s then, beginning in 1997, swept out again – taking a great deal of local capital with it. The crisis posed new questions about how to manage risk in an increasingly globalised financial system, the appropriate sequencing of financial liberalisation and, more fundamentally, the very desirability of capital account liberalisation in countries with little bureaucratic or political capacity to implement effective systems of prudential regulation.