THE EAST ASIAN crisis is only the latest in a series of spectacular economic
catastrophes in developing countries. In the past twenty years at
least ten countries have suffered from the simultaneous onset of currency
crises and banking crises. This has led to full-blown economic
crises, in many cases with GDP contractions of 5 to 12 percent in the
first year and negative or only slightly positive growth for several years
after. Many other countries have experienced contractions of similar
magnitude following currency or banking crises.
Financial crises are not strictly exogenous; in many cases the slowdown
itself, or the very factors that led to it, have helped to cause a financial
crisis. But there is no doubt that the standard features of financial crises,
including overshooting exchange rates, withdrawal of foreign capital, failure
to roll over short-term debts, internal credit crunches, and the process
of disintermediation have also been important.