Finance and the real economy: theoretical implications of the ®nancial crisis in Asia q Michael Webber * Department of Geography and Environmental Studies, The University of Melbourne, Vic., 3010, Australia Received 22 June 1999; in revised form 22 June 2000 Abstract This paper oers a preliminary assessment of some implications of the Asian ®nancial crisis for theories about the development of a global economy. The paper (i) draws together some of the available evidence about the history of the crisis, and (ii) identi®es some current diagnoses of its cause before (iii) arguing that the central implication of the crisis is that it enables us to identify the manner in which the ®nancial and real economies are linked. While the evidence about the chain of events and causes in this crisis still remains scattered, most diagnoses point to the particular economic and political characteristics of the speci®c countries involved: the ®nancial crisis re¯ected real conditions. By contrast, it is argued that the crisis was driven by ®nancial considerations, that re¯ect the mode of operation of the global ®nancial system not the characteristics of east Asia. Ó 2001 Elsevier Science Ltd. All rights reserved. Keywords: Asia; Finance; Crisis; Globalisation 0. Introduction Between mid-1997 and mid-1998, the currencies of Indonesia, South Korea and Thailand each lost over a third of their value; the currencies of virtually all other countries in the Asia-Paci®c region lost over 20% of their value. Some South American currencies were fall- ing and Russia was about to default on its loans. Eu- ropean banks, currencies, and stock markets were badly aected. The sharp decline in worldwide economic growth brought commodity prices to a historical low. As the Asian Development Bank (1999) observed a year later, the threat of a global recession loomed over the world economy in mid-1998. Yet at the end of 1999, European and North American economies and ®nancial markets seemed unaected by this crisis in Asia; and within the Asian-Paci®c region itself, recovery is un- derway (World Bank, 1999) ± the ADB expects Korea's GDP to have grown by over 8% in 1999, a lead followed by Taiwan, Singapore, Malaysia, Philippines and Thai- land (though Hong Kong and Indonesia remain in the doldrums). Despite the speed of this apparent recovery, despite too the manner in which the crisis has been con®ned spatially, the ®nancial crisis in Asia is one of the key events of our time. 1 The crisis is so important for three main reasons. First, for many people in east and Southeast Asia, the crisis is likely to be a de®ning event of their lives (Lee and Rhee, 1999). Throughout the region the incidence of poverty has increased signi®cantly, with some countries experiencing signi®cant declines in households' access to both health and education services for the poor (World Bank, 1999; Levinsohn et al., 1999). Divorce and suicide rates in Thailand skyrocketed after the crisis; the num- ber of infants abandoned after birth or placed in or- phanages increased; there has been a rise in the number of arrests for drug-related criminal activity and property crimes (World Bank Oce Thailand, 1999). Within In- donesia people are continuing to be killed in riots trig- Geoforum 32 (2001) 1±13 www.elsevier.com/locate/geoforum q The paper was presented at the 95th Annual Meeting, Associa- tion of American Geographers, Honolulu, 24±27 March 1999; a revised version was presented at the conference, The Asia-Paci®c Economy in 1997 and into the 21st Century, Hitotsubashi University, Tokyo, 18±20 December 1999. I am grateful to participants at both conferences for their comments on earlier drafts of this paper. * E-mail address: m.webber@geography.unimelb.edu.au (M. Web- ber). 1 I use the phrase ``®nancial crisis in Asia'' to signify that it remains an open question whether the crisis is a crisis of Asia (as in ``Asian ®nancial crisis'') or merely a crisis in Asia (a crisis of the global ®nancial system that has ``touched down'' in Asia). 0016-7185/01/$ - see front matter Ó 2001 Elsevier Science Ltd. All rights reserved. PII: S 0 0 1 6 - 7 1 8 5 ( 0 0 ) 0 0 0 3 6 - 1