In the Second Half of 1997 Several East Asian Crisis Countries

experienced a massive reversal of the large foreign private capital inflows they had enjoyed through much of the 1990s. The net swing from inflows to outflows between 1996 and 1997 amounted to more than $100 billion for the five crisis countries—Indonesia, the Republic of Korea, Malaysia, the Philippines, and Thailand—or 11 percent of their gross domestic product (GDP) before the crisis. The reversal precipitated steep devaluations of currencies, large increases in interest rates, and severe declines in stock and other asset prices, initiating the deep financial and economic crises that have gripped these countries since. Contagion effects from the crisis spread throughout the developing world. But instead of dying away quickly, as they did after the 1994 Mexico peso crisis, they were the precursor of currency and financial crises in the Russian Federation in August 1998, followed by a more general withdrawal of private capital from emerging markets.