An Explanation of the 1997 Asian Crash: A Commentary

Conventional wisdom usually escapes verification due to the approval it gets to most people.
These accepted truths may not be true at all, so there is a need to look deeper, especially on the
conventional on the conventional reasons for the 1997 Asian Crash, that nobody saw it coming and it
was inevitable.
The article entitled: An Explanation of the 1997 Asian Crash by Francois Godement seeks to
provide an explanation of the Asian Financial Crisis of 1997. Also it shed some light on the weaknesses of
existing explanations of the Crash, and points at the common mistakes which include misattribution on
explaining the problem and blaming it on events immediately prior to the materialization of the problem
itself.
For purposes of clarity, the structural overview of this paper includes an analysis of the article
itself which is composed of the strengths and weaknesses of the methodology or on the substantial
aspect of the paper. Also there would be if possible, recommendations which could somehow overcome
the limitations pointed. It would include complementary approaches and lenses of analysis that could
aid in explaining why and how the crisis was created. A synthesis or conclusion would then follow that
would summarize the important points and objectives of this paper.
One of the strong points in the article is that, it seeks to clarify and analyze the reliability of
existing explanations of the Asian Financial Crisis of 1997. Also, in terms of the methodological aspect,
the data presentation was also clear in a sense that it presents a conventional theory or possible
explanation then demystifies it using data and statistical proofs later on. For instance, the explanation
that perhaps cronyism and corruption was the cause of the crisis, this may seem plausible but those who
blames corruption as the cause of the crisis, neglects the idea that corruption is already there even
before, thus it is just right to say that it became part or even contributed to the Asian miracles prior to
the crisis. Therefore corruption could not and should not be blamed as the sole reason for the Crash of
1997.
Another strength is that, the author has given us insights of the different ways on handling crises
and the different types of crises. If there is such a thing as military crisis, like the one that happened on
the Cuban Missile Crisis, it is expected that the crisis management should be done in an expedious
manner. Policies that should be upheld during these times should be firm, well-calculated and could be
extremes like deciding for an embargo. However, in the financial crisis that was explained it proves that
policies should not be extremes especially, when it is against the flow of the market. This is because
extreme policies provide a great risk for investors, and also it may somehow cause fear and result in
capital flight or investor deterrence. For instance, on the early times of the crisis when Malaysia or Korea
tried to buck the trend with the financial equivalent of speed bumps, or capping daily sales or index
declines, they were seen as hindering the freedom of market forces and provoked investors to bail out
as quickly as they could. This teaches us a lesson that unlike military crises, when handling financial
crisis, extreme policies should not be instituted rather, decision-makers should op out for incremental
policies, due to their small understanding of the situation. (insert citation) Also, unlike the decision of a
country to wage war or create an embargo, financial crisis deal mostly with people, especially investors,
and their trusts cannot be decreed but earned, so decision makers should understand the situation first
and then gradually regulate, the market to prevent it from failing like those stop measures of the Wall
Street that limit the hourly moves of the indexes.
Moreover, despite the strengths, the article has suffered from small weaknesses. These include
the inability to incorporate and explain the crash on the institutional level of the different countries.
Also, it leads us to assume that as a country acts in the face of a crisis, it is acting in a cohesive form
without veto players and conflict from within. If only the crisis has been contained in a specific country
through measures done by policy makers, through institutions, the crisis would not have spread and
inflicted major damage. Like disasters, the survivability of a country in the face of a crisis lies on its
efficient management of it.
I recommend the application of institutional analysis of different Asian countries, may be
including the application of the veto player framework. (Insert citation) This is important since, it would
incorporate and would take into account the possibility that the inability of a country to respond to crisis
may be due to the institutions itself, due to the conflict from within, or from differences in policy
preferences of different veto players.
In conclusion, the article has provided us with different explanations and analysis of the so
called conventional wisdom. It showed that most of these so called conventional explanations of the
crash may have not really be the cause of the crisis itself, because as the author clarified, the financial
crisis have been the result of a concatenation of events that led to a regional crisis in Asia. These events
include the part played by US on Japans decisions, transitionary phase of most Asian countries from a
close to an open market economy, too much belief in a neo-liberal view and off beam presciptions of
the IMF. The concoction of these recipes led to a full blown crisis in 1997.
The articles methodology was