Asia generally refers to the region bounded by Japan to the east， Siberia to the north， Indonesia to the south， and Turkey and Saudi Arabia to the west， an area containing one-half of the world's population. East Asia， as we use the term， includes China， NIEs1 (Korea， Taiwan， Hong Kong， Singapore)， and ASEAN 42 (Philippines， Thailand， Malaysia， and Indonesia).3 East Asia has gained worldwide acclaim in recent years due to the region's sustained high economic growth rate over the past several decades. This growth was led by NIEs in the 1960s， ASEAN in the 1980s， and countries such as Vietnam in the 1990s. Interest in this success story culminated in a World Bank report in 1993 entitled， "The East Asian Miracle."4 Nowadays， however， the World Bank is asking， "Is the East Asian 'Miracle' Over?" The unexpected financial crisis has shaken confidence in some quarters regarding East Asia's ability to maintain its high economic growth going forward. Asia's currency crisis， which has rocked the world economy since July 1997， continues to fester throughout the region， leaving the outlook for East Asian economies obscure. In this paper， we look at the causes behind the recent currency problems and how the situation grew out of hand. ________________________________________
2. Early Signs of the Currency Crisis
(1) Slower Growth
Although the crisis emerged in July 1997， signs of trouble had appeared earlier. Doubts over the "East Asian Miracle" began growing around 1996， when the region's export growth showed signs of sluggishness， and economic growth rates declined as a result. However， the general consensus at that time seemed to be that the Asian economy was taking a pause， and would resume its strong growth in a few years. The reasoning behind this view was as follows: Since exports have supported East Asia's rapid growth over the medium to long term， the recent sluggishness in export growth has seriously impacted the East Asian economy. However， entering 1996， slower export growth was caused mainly by external factors such as the global semiconductor market slump and strong dollar/weak yen. Since East Asia's export competitiveness remains sound， exports are sure to recover when the external environment changes. But the currency crisis struck in July 1997 before any major changes had occurred in the external environment. Put simply， the Asian currency crisis refers to a sharp decline in East Asian currencies (of course， not all currencies fell， nor by the same amount) from July 1997， when they became unable to withstand devaluation pressures and floating rates and other measures were implemented. A rapid currency devaluation can affect the real economy through both direct and indirect routes. For instance， large interest rate hikes and other excessive measures to protect the currency have a negative impact on the real economy， and may lead to economic turmoil. In addition， if the IMF5 is called in to protect the currency from insufficient external liquidity， the austerity measures imposed by the IMF will slow down the economy in the short term. (Indeed， a weak currency makes exports more competitive and thus helps export to recover. In this sense， East Asian exports have the opportunity to recover without waiting for changes in the external environment.) (2) Causes of the Currency Crisis
In addition to the external factors mentioned above， East Asian economies were also being gradually weakened by structural factors. While there are minor differences in each country， the structural factors include: (1) high real effective exchange rates， (2) financial crisis from the collapse of a financial bubble driven by foreign capital inflows， (3) catching up of low-wage countries China and Vietnam， and (4) large current account deficits caused by the above factors. The most important of these is the high real effective exchange rates， which reduce the price competitiveness of...