What caused the Asian Financial Crisis of 1997?

According to one theory, the surge in capital inflow made Asia vulnerable to panic. When panic happened, many investors pulled their money out, thus leading to a crisis.

According to another theory, the weaknesses of the Asian financial systems led to the crisis, as there were no incentives for effective risk management.

The devaluation of Asian currencies, the devaluation of the Chinese remnimbi and the Japanese yen, harmed the export revenues and slowed down the economy.

The sharp decline in semiconductor prices affected export revenues negatively, as Asia was a net exporter of semi-conductors.

The collapse of the Thai baht is believed to be one of the reasons that led to the collapse of the Asian economy during that period, as it prompted investors to assess the financial systems in the region.

The disruptions in bank and borrower balance sheets led to widespread bankruptcies and the interruption in credit flows. This resulted in a severe economic slowdown.

Some people believe that the Inefficient use of the money coming in was one of the reasons that caused the crisis. The inefficient use of capital inflows resulted in widening current account deficits.

The fixation of exchange rates in many Asian countries gave borrowers a false sense of security. Later on, when devaluations happened those people lost a lot of money.

The big success the Asian countries achieved before the crisis led many people to underestimate the warning signs that were showing up and the economic weakness that was happening.

The lack of transparency prevented many people from seeing the warning signs and from knowing about the true state of the economy.

Because capital was easily obtained at a cheap price, the prices of assets were inflated to levels that are not sustainable.