This paper argues that what led to the Asian financial crisis was a fatal combination of several self-reinforcing factors including external sector weaknesses, fragility in domestic financial markets due to inadequately administered financial liberalisation, loss of confidence, and short-term capital flows, maturing within less than a year and denominated in unhedged dollars. Some of these factors were country-specific while others were common to the entire region.

Asia's financial crisis will almost certainly lead to important changes in the international financial system, as countries try to find an appropriate balance between the benefits from gaining access to intentional capital flows and the potential for instability and ohter risks that also seem to be much greater in a world of large and highly mobile capital movements. The paper discusses important lessons from the crisis.