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high growth rates and usually had to re-adjust their growth rates to the top. But this time, all affected countries had to correct their forecasts into the other direction. In 1996, Indonesia corrected its export growth from 14.3 to 4.9 %, Malaysia from 18 to 7.3 %, The Philippines from 25 to 17.7 & and Thailand from 22 to minus 1.7 %. Slow but steadily, the ball got rolling towards the East Asian financial crisis.

Yet another sign of fiscal risk can be seen from the relation between short term debt and reserves in foreign reserves. This relation provides information about how many foreign debts on a short term basis is available in comparison to liquid assets available opposing to each other, as seen in Table 4.4. In the middle of 1997, those countries that will happen to experience the highest impact of the fiscal crisis, namely in Indonesia, Thailand, and South Korea, had one thing in common. All of them had a short term debts that are beyond the reserves in foreign currency. It can be seen that those data is beyond the ratio of 1.0. This alone couldn't be the only reason for stimulating a fiscal crisis, however, it shows yet another loophole in the fiscal system of these countries that can and will do its part to cause the East Asian events in 1997 and 1998. In times of uncertainty, the reserves in foreign currency would not be enough to cover paying back the short term debts. Usually, in normal times, the reserves should hold a certain level of liquidity so that a certain level of reserve requirements can be ensured to cover the short term debts in case of hard times.

The crisis was foreseen by almost anybody. We can come to the conclusion after analyzing the statistics about the flow of capital data on capital flows, data from the International Monetary Fund or from others. The biggest warning sign was occurring in Thailand. Thailand had to fight with a serious depreciation of its currency in 1996 and in early period of 1997 after cutting its peg to the US Dollar. This and other warning signs, especially warning signs of fiscal risk, were swept under the carpet. Short term debts were however rising to higher levels in comparison to the reserves in foreign currency in Indonesia, in South Korea, and in Thailand. Yet again, these imbalances were fiscal warning signs disclosing weaknesses, but would not necessarily lead to a crisis.

We can say that the crisis was unpredicted by market participants and market analysts. There were some warnings but fact is that the financial market did not ring the alarm bells to understand the nature of the crisis in just another stage of the ongoing globalization on the world. When the Thai baht was devaluated in early 1997, it triggered the capital outflows from the rest of East Asia.

4.2 The “East Asian Miracle” and the Financial Crisis in 1997 and 1998
In 1982, Roy Hofheinz, Jr. and Kent E. Calder held that the European and American war-making power were the strongest in the world, but their defenses against unarmed aggression and competition were weak. At that time, they kept in mind that the aggression would come from the East Asia Edge, and continued to ring the alarm bell as follow: “The high noon of European and American industrial supremacy has passed, bringing to an end the brief period of few hundred years in which Asia, especially the eastern part of Asia, did not dominate the world” (Hofheinz and Calter, 1982: 5).
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