The 1997 Asian financial crisis, nicknamed the Tom Yum Kung crisis, followed a boom in which Southeast Asia drew almost half of the capital flowing to developing countries. Thailand, Indonesia and Malaysia pegged their currencies to the U.S. dollar, encouraging firms to borrow cheap dollars for real estate and politically connected projects. When Alan Greenspan’s Federal Reserve raised rates, the pegged currencies rose with the dollar, exports stalled amid a semiconductor slump, and Thailand ran out of reserves and floated the baht on July 2, 1997, a day after Britain handed Hong Kong to China. Indonesia’s rupiah fell from about 2,600 to over 14,000 per dollar, its economy shrank 13.5 percent, and the May 1998 Jakarta riots ended Suharto’s 31-year rule. In South Korea, debt crushed chaebol such as Kia Motors, and Seoul took a $58.4 billion IMF bailout.

The IMF, with figures like Stanley Fischer, demanded high interest rates, spending cuts and letting failing firms collapse, a prescription critics say deepened the recession. Malaysia’s Prime Minister Mahathir Mohamad refused IMF help, blamed speculators including George Soros, and imposed capital controls that trapped foreign money inside the country. Hong Kong let overnight rates briefly hit 280 percent, then spent about $15 billion buying local stocks to squeeze short sellers, later selling at a profit. China, shielded by a non-convertible renminbi, declined to devalue. Falling Asian demand pushed oil to about $11 a barrel, feeding Russia’s 1998 default and Long-Term Capital Management’s $4.6 billion loss. Afterward, Asian governments hoarded dollar reserves and bought U.S. Treasuries, and the episode asks whether that flood of capital helped inflate the cheap credit behind 2008.

• The IMF’s first rescue effort totaled $40 billion and came with strict structural adjustment conditions.
• Jeffrey Sachs and Joseph Stiglitz described the panic as a bank run driven by asymmetric information and herd behavior.
• Estimates put crisis-linked suicides at over 10,000 across Hong Kong, Japan and South Korea.
• Many Asian economies made a V-shaped recovery by 1999.
• Russia and Brazil joined Asian nations in shifting to trade surpluses and reserve hoarding as self-insurance.