What happened to Asia?
            
             It would seem safe to say that nobody expected anything like the 1997-98 crisis in Asia: suddenly the 'Asian miracle' became the 'Asian crisis'. Although, there were a few pessimists who had noted that the current account deficits were as high as or higher than those of Latin America in 1994. No-one expected more than a conventional currency crisis followed by at most a modest downturn. As soon as the crisis hit in mid-1997, the IMF laid the blame on the shortcomings of the East Asian financial markets [1]. The basic diagnosis was that the crisis reflected structural and policy in the countries of the region. Fundamental imbalances because their financial systems were riddled by insider dealing, corruption, and weak corporate governance, which in turn, had led to inefficient investment spending and had weakened the stability of the banking system.
            
             Existing models of currency crisis were powerless to explain what happened. This was not a ' first generation' currency crisis [2] brought about by excess budget deficits. Nor was the crisis caused by a conflict between the need to defend a fixed exchange rate and the expansion needed to remove high unemployment. To understand what happened to Asia, a new 'third generation' model needed to be developed. In the aftermath of the crisis, there was debate whether this new crisis model was a problem of panic and collapse, or instead, a problem resulting from a worsening of fundamentals.
            
             In an emerging market financial crisis, an economy that has been the recipient of large-scale capital inflows stops receiving such inflows and instead faces demands for the repayment of outstanding loans. This abrupt reversal of flows leads to financial embarrassment [3], as loans fall into default or are pushed to the brink of default. In August 1982, Mexico was pushed to the brink of default when it was unable to roll over short-term d...