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fore the crisis is occurring. The main goal is to emphasize the role of globalization and the affect it had in financial terms as an essential element of the Asian crisis. A huge amount of foreign direct investment was existent in these countries. Fundamental shortcomings in the fiscal system were leading to imbalances in the respective market economies. However, it is less likely that these imbalances alone would escalate into a financial crisis. Instead, a combination of the practices of the global investment collective together with inadequate policies existing at the beginning of the East Asian events and not well prepared international aid resulted in taking back foreign capital which in turn was leading into fiscal uncertainty. This was speeding up the process right on the track of spreading like a wildfire.

So, one could ask why East Asian countries attracted foreign capital that much. One of the reasons is that especially western developed countries are having higher production costs etc. in their own countries. For that reason, they were trying to shift comparative advantage to make use of lower labor wages in investing in middle developed and developing countries with inward foreign direct investment. With this, demand was generated by outsourcing. A new development of our times is that foreign capital inflow beyond domestic borders is easier than it used to be. Also, the enormous reduction of costs in transportation and communication and an upward trend in the flow of goods, services and human capital beyond domestic borders favored the occurrence of this new development. However, we have to bear in mind that not all countries have been equally open to the globalization process, such as not so democratized countries or countries that shield their economies with governments issuing control policies.

As shown in Table 4.1, just at the beginning of the crisis, there has been a rapid reversal of private inflows into the East Asian countries. Indonesia, Korea, Malaysia, the Philippines, and Thailand, had a drop in net private inflows from $93 billion to -$12.1 billion from the year of 1996 to the first half of 1997. The external financing went from $47.4 to $15.2 billion in the same time period. Capital inflows remained robust in 1996 as well as for the most time in 1997. Despite that, investors started to feel uncomfortable on the equity markets of Thailand and of South Korea in the year of 1996. After that, there occurred a significant drop in these markets in March 1997. Nevertheless, there was still a high influx of money until middle of 1997. The same is true for banks in Indonesia which are still granting credits until then.

In relation to that, the bank lending went to both domestic banks and domestic non-bank borrowers during this period, as shown in Table 4.2. In South Korea, banks were mainly lending money. Non-banks from the private sector had the highest share in lending and borrowing money in Indonesia. But besides in South Korea, non-banks had also high shares in all the respective countries as well. The private sector used to have relatively powerful connections into the area of politics. Lending to the private sector and to banks remained on a high level until June of the year 1997.

After the current situation became clearer and clearer, the expectations of export growth were corrected drastically, as seen in Table 4.3. Before, these countries were used to