What caused the Asian currency and financial crisis?

The paper explores the view that the Asian currency and financial crises in 1997 and 1998 reflected structural and policy distortions in the countries of the region, even if market overreaction and herding caused the plunge o f exchange rates, asset prices and economic activity to be more severe than warranted by the initial weak economic conditions. The first part of the p aper provides an overview of economic fundamentals in Asia on the eve of th e crisis, with emphasis on current account imbalances, quantity and quality of financial 'overlending', banking problems, and composition, maturity an d size of capital inflows. The second part of the paper presents a reconstr uction of the Asian crisis from the antecedents in 1995-1996 to the recent developments in early 1999 in parallel with a survey of the debate on the s trategies to recover from the crisis, the role of international interventio n, and the costs and benefits of capital controls. (C) 1999 Elsevier Scienc e B.V. All rights reserved. JEL classification: F31; F33; F34; F36; G15; G1 8.