The Growth of the “Asian Tigers”

By Richard C. Longworth
The Growth of the “Asian Tigers”

The seeds of the Asian financial crisis were sown at least 20 years ago, as many Asian nations—Singapore, Hong Kong, Taiwan, South Korea, and, later, Indonesia, Thailand, and Malaysia—adopted market-friendly policies, opened their domestic markets, and courted foreign investment. This investment poured in. Once-poor nations found themselves awash in money, factories, jobs, rapid economic growth, and all the things that go with it: new roads and airports, soaring skyscrapers, good restaurants, and luxury hotels.

These were the “Asian tigers,” and they became the market’s darlings. Nations anxious to borrow money met banks that were equally anxious to lend it. The good times rolled, and not enough questions were asked. In retrospect, once the bubble burst, it became clear that too much money could cause as much trouble as too little money. Asian banks lacked the supervision and control that had been worked out over the decades in more developed economies. Too often, loans were given to businesses distinguished primarily by their ties to government officials or the military. Much of the investment in Asia went for solid productive facilities. But much also went for speculative projects, such as the twin towers in Kuala Lumpur, Malaysia, that are now the world’s tallest buildings, and which stand mostly vacant.

In the late 19th and early 20th centuries, many Western nations learned that uncontrolled capitalism can destroy as surely as it builds. Over the years, they put into place a web of rules and regulations to prevent excesses, enforce accountability, and ensure safety nets, such as unemployment insurance. The Asian nations, new to the game and flush with money, lacked key economic safeguards, including teams of trained bank supervisors, bankruptcy laws, sophisticated commercial courts, and rules requiring corporations to report their finances honestly. So long as the funds flowed, these nations had no interest in adopting those safeguards.

In the meantime, most of the Asian countries pegged the value of their currencies to the American dollar—a move intended to reduce the threat of costly and destabilizing currency fluctuations, and to reassure investors and lenders that their bets were safe. The IMF warned of trouble ahead but in tones so muted that no one paid attention. The end, when it came, was brutally swift.

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