In the late 1980s and early 1990s, Thailand, Malaysia, South Korea and Indonesia posted growth of 8% to 12% a year, drawing a flood of short-term “hot money” from foreign investors. Their currencies were pegged to the U.S. dollar, so local companies borrowed heavily in dollars without hedging. Then China and Japan devalued, semiconductor prices fell, and Alan Greenspan’s Federal Reserve raised rates, dragging the pegged currencies up and making Asian exports expensive. On July 2, 1997, one day after Hong Kong was handed back to China, Thailand’s central bank ran out of reserves and floated the baht, and it crashed.

Panic spread to Indonesia, the Philippines and South Korea. The IMF assembled rescue packages starting at $40 billion, tied to structural adjustment programs that demanded spending cuts and sky-high interest rates. Malaysia’s Mahathir Mohamad rejected the IMF, blamed speculators such as George Soros, and imposed capital controls, while Hong Kong bought billions in stocks to burn short sellers. The slump in Asian demand pushed oil to $11 a barrel, helping trigger Russia’s 1998 default and the collapse of Long-Term Capital Management, and Asia’s later hoarding of U.S. Treasuries helped cheapen the credit behind the 2008 housing bubble.

• The Indonesian rupiah fell from about 2,600 to more than 14,000 per dollar, and riots in May 1998 forced Suharto out after 31 years.
• Malaysia made offshore ringgit trading illegal and barred foreign portfolio money from leaving the country for at least a year.
• Hong Kong pushed overnight interest rates as high as 280% and later sold the shares it bought for a large profit.
• China held its dollar peg and was shielded by a non-convertible capital account, while Singapore used a slow managed depreciation.
• IMF demands for transparency pushed Southeast Asian business away from the trust-based “bamboo network” toward Western-style corporate governance.